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Will Boustead Singapore Limited Be Able to Survive the Tough Times?

Boustead Singapore Limited (SGX: F9D), Singapore’s oldest continuous business, was established in 1828. Having evolved its business over time, it is currently a global service provider of infrastructure-related engineering services and geo-spatial technology.

The firm has been facing rough waters in recent history. From Financial Year 2013 (FY2013) to FY2017, revenue declined from S$513.2 million to S$433.8 million while net profit tumbled from S$81.4 million to S$33.3 million.

Source: Boustead Singapore FY2017 Annual Report

The question is, would Boustead be able to weather the storm and emerge unscathed many years later? To help to answer the tricky question, we have to turn our attention to the Balance Sheet (also known as Statement of Financial Position) of the firm.

The balance sheet offers a snapshot of a company’s health. It tells us how much a company owns (or “Assets”), and how much it owes (or “Liabilities”). The difference between what it owns and what it owes is its equity (also known as “Shareholders’ Equity).

The following is the balance sheet of the firm as at 31 March 2017:

Source: Boustead Singapore FY2017 Annual Report

We will focus on three aspects of the balance sheet and they are “Cash and cash equivalents” (shown in blue), “Borrowings” (shown in red) and “Retained profits” (shown in green).

Cash and cash equivalents

Boustead had a cash position of S$276.5 million as at 31 March 2017, a step-up over the previous year’s figure of S$259.1 million.

This is a healthy sign. Cash allows protection against tough times, and it also gives companies the flexibility for future growth. Growing cash reserves often point to a strong company performance.

Borrowings

Borrowings are broken down into long-term (non-current or due more than a year later) and short-term (current or obligations the firm must pay within a year).

As at 31 March 2017, the total borrowings (non-current plus current) came up to around S$88.4 million. This is an improvement from the previous year’s figure of S$93.4 million.

Since the debt level is less than three times its FY2017 net profit of close to S$33 million, the debt is manageable. Theoretically, it needs less than three years of net profit to pay off its debt obligations in full.

If you would like, you can go on to measure the current ratio, which reveals a firm’s ability to pay its obligations within the year. (Hint: The current ratio is more than 1.)

Retained profits

It is the accumulated amount of a firm’s prior earnings, after paying out the dividends to shareholders. This amount can then be reinvested into its own business for growth or used to pay off debt.

It is encouraging that the retained profits of Boustead had grown from S$237.9 million to S$258.2 million, as at 31 March 2017.

Foolish Takeaway

Boustead has a healthy balance sheet that is fortified with loads of cash. Together with manageable debt levels and increasing retained profits, it is highly likely that Boustead will be able to survive the tough times that it is facing currently.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P owns shares in Boustead Projects Ltd.