Investors are always looking for growth in small-cap stocks like Techcomp (Holdings) Limited (SGX:T43), with a market cap of US$190.05m. However, an important fact which most ignore is: how financially healthy is the business? Healthcare companies, even ones that are profitable, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I suggest you dig deeper yourself into T43 here.
How much cash does T43 generate through its operations?
Over the past year, T43 has reduced its debt from US$42.63m to US$40.01m – this includes both the current and long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$14.44m , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of T43’s operating efficiency ratios such as ROA here.
Can T43 meet its short-term obligations with the cash in hand?
With current liabilities at US$79.25m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.87x. Usually, for Healthcare companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does T43 face the risk of succumbing to its debt-load?With a debt-to-equity ratio of 48.72%, T43 can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In T43’s case, the ratio of 1.27x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
T43’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure T43 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Techcomp (Holdings) to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for T43’s future growth? Take a look at our free research report of analyst consensus for T43’s outlook.
- Historical Performance: What has T43’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.