Are A-Smart Holdings Ltd's (SGX:BQC) Interest Costs Too High?

A-Smart Holdings Ltd (SGX:BQC) is a small-cap stock with a market capitalization of S$70.07M. 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? Given that BQC is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I recommend you dig deeper yourself into BQC here.

Does BQC generate an acceptable amount of cash through operations?

Over the past year, BQC has reduced its debt from S$1.83M to S$1.39M . With this debt payback, the current cash and short-term investment levels stands at S$4.19M , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 BQC’s operating efficiency ratios such as ROA here.

Can BQC meet its short-term obligations with the cash in hand?

Looking at BQC’s most recent S$3.46M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.08x. Usually, for Commercial Services 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.

Can BQC service its debt comfortably?

With debt at 22.09% of equity, BQC may be thought of as appropriately levered. BQC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors' risk associated with debt is very low with BQC, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

BQC’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for BQC's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research A-Smart Holdings to get a more holistic view of the stock by looking at:

• 1. Historical Performance: What has BQC'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.
• 2. 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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.