Yahoo Finance Is Stamford Land Corporation Ltd’s (SGX:H07) Balance Sheet Strong Enough To Weather A Storm?
Stamford Land Corporation Ltd (SGX:H07) is a small-cap stock with a market capitalization of S$414.76m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into H07 here.
How much cash does H07 generate through its operations?
H07’s debt levels have fallen from S$364.92m to S$209.48m over the last 12 months , which is made up of current and long term debt. With this reduction in debt, H07 currently has S$175.76m remaining in cash and short-term investments for investing into the business. Moreover, H07 has generated cash from operations of S$207.97m during the same period of time, leading to an operating cash to total debt ratio of 99.28%, signalling that H07’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In H07’s case, it is able to generate 0.99x cash from its debt capital.
Does H07’s liquid assets cover its short-term commitments?
At the current liabilities level of S$49.37m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of S$303.32m, with a current ratio of 6.14x. However, anything above 3x is considered high and could mean that H07 has too much idle capital in low-earning investments.
Can H07 service its debt comfortably?
With debt reaching 40.37% of equity, H07 may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether H07 is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In H07’s, case, the ratio of 12x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving H07 ample headroom to grow its debt facilities.
Next Steps:
Although H07’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure H07 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Stamford Land to get a more holistic view of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for H07’s future growth? Take a look at our free research report of analyst consensus for H07’s outlook.
Valuation: What is H07 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether H07 is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
