Yahoo Finance Is Far East Orchard Limited’s (SGX:O10) Balance Sheet A Threat To Its Future?
Far East Orchard Limited (SGX:O10) is a small-cap stock with a market capitalization of S$581.5m. 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, since I only look at basic financial figures, I suggest you dig deeper yourself into O10 here.
How much cash does O10 generate through its operations?
Over the past year, O10 has ramped up its debt from S$206.2m to S$257.3m , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at S$254.2m for investing into the business. Additionally, O10 has produced cash from operations of S$17.8m over the same time period, leading to an operating cash to total debt ratio of 6.9%, signalling that O10’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In O10’s case, it is able to generate 0.069x cash from its debt capital.
Can O10 pay its short-term liabilities?
Looking at O10’s most recent S$352.4m liabilities, it seems that the business has been able to meet these commitments with a current assets level of S$441.0m, leading to a 1.25x current account ratio. Generally, for Real Estate companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is O10’s debt level acceptable?
With a debt-to-equity ratio of 20.1%, O10’s debt level may be seen as prudent. O10 is not taking on too much debt commitment, which may be constraining for future growth. We can test if O10’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For O10, the ratio of 9.43x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
O10’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 exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure O10 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Far East Orchard to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for O10’s future growth? Take a look at our free research report of analyst consensus for O10’s outlook.
Valuation: What is O10 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 O10 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
