SIA Engineering Company Ltd (SGX: S59) is an aircraft maintenance, repair and overhaul firm that is primarily owned by our flag carrier, Singapore Airlines Ltd (SGX: C6L). The engineering company’s shares had declined from around S$5 in May 2013 to end today at S$3.10, translating to a slump of 38%. The most probable reason for the share price fall is the poor performance of its business amid a challenging operating environment. Would SIA Engineering be able to weather the storm and emerge unscathed many years later? To answer that question, we can turn our attention to the Balance Sheet…
The engineering company’s shares had declined from around S$5 in May 2013 to end today at S$3.10, translating to a slump of 38%. The most probable reason for the share price fall is the poor performance of its business amid a challenging operating environment.
Would SIA Engineering be able to weather the storm and emerge unscathed many years later? To answer that question, we can turn our attention to the Balance Sheet (also known as Statement of Financial Position) of the company.
The balance sheet offers a snapshot of a firm’s health. It tells you 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 key figures required from the firm’s balance sheet are shown below:
|As at 30 September 2017||As at 31 March 2017|
|Cash and bank balances, and short-term deposits||S$467.2 million||S$601.7 million|
|Total bank loan||S$26.8 million||S$25.9 million|
|General reserve||S$1.13 billion||S$1.20 billion|
Source: SIA Engineering Company Ltd 2017 Second Quarter Earnings
Cash and bank balances, and short-term deposits
Cash allows protection against tough times, and it also gives companies the flexibility for future growth.
SIA Engineering had a total cash position of S$467.2 million as at 30 September 2017, a decline from 31 March 2017’s figure. Even then, its cash balance is high, which is a healthy sign.
Total bank loan
Also known as debt or borrowings, it is 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 30 September 2017, the total borrowings (non-current plus current) were around S$27 million.
Since the debt level is less than its 2017 second-quarter net profit of S$38.1 million, the debt is extremely manageable. Theoretically, it only needs one-quarter of net profit to pay off its debt obligations in full.
Also known as retained earnings, 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.
SIA Engineering had retained earnings of S$1.13 billion, as at 30 September 2017. This is a decline from the end of March 2017. It would be preferable to see a growing number, but the fall is not too much of a concern.
The Foolish takeaway
SIA Engineering has a healthy balance sheet fortified with loads of cash. Together with the low debt levels, it is highly likely that SIA Engineering 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 doesn’t own shares in any companies mentioned.