Is SIA Engineering Company Limited (SGX:S59) As Strong As Its Balance Sheet Indicates?

Mid-caps stocks, like SIA Engineering Company Limited (SGX:S59) with a market capitalization of S$2.7b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. S59’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into S59 here.

View our latest analysis for SIA Engineering

S59’s Debt (And Cash Flows)

S59 has shrunk its total debt levels in the last twelve months, from S$25m to S$20m – this includes long-term debt. With this debt repayment, S59's cash and short-term investments stands at S$471m to keep the business going. Moreover, S59 has produced cash from operations of S$78m in the last twelve months, resulting in an operating cash to total debt ratio of 386%, signalling that S59’s debt is appropriately covered by operating cash.

Can S59 meet its short-term obligations with the cash in hand?

At the current liabilities level of S$226m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.99x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.

Is S59’s debt level acceptable?

With a debt-to-equity ratio of 1.3%, S59's debt level is relatively low. S59 is not taking on too much debt commitment, which may be constraining for future growth.

Next Steps:

S59’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure S59 has company-specific issues impacting its capital structure decisions. I recommend you continue to research SIA Engineering to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for S59’s future growth? Take a look at our free research report of analyst consensus for S59’s outlook.
2. Valuation: What is S59 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 S59 is currently mispriced by the market.
3. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.