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A Dive into the Financials of Haw Par Corporation Ltd, the Maker of Tiger Balm

Haw Par Corporation Ltd (SGX: H02) owns the Tiger Balm brand of ointment. Other than its healthcare business, it also owns strategic stakes in UOL Group Limited (SGX: U14) and United Overseas Bank Ltd (SGX: U11).

Shares in Haw Par have fallen by some 14% since the peak seen in early-May 2018. Due to the dwindling share price, there could be some opportunity with the company. However, before a concrete decision can be made to invest, one has to look at its historical financial performance to understand if it has a strong business.

With that, let’s learn more about Haw Par by looking at its critical historical financial figures.

Revenue and profit

We will start with the income statement. This statement, also known as profit and loss statement, shows us how much revenue a company brings in from the sale of its goods and services, and how much is left after paying all the various overheads needed to run the business. The leftover portion is known as profit.

The table below shows the key figures from Haw Par’s income statement in its last five financial years (the company has a fiscal year that ends on 31 December every year): Source: S&P Global Market Intelligence

Haw Par’s revenue, gross profit and net profit have increased for the past five financial years. In 2015, though, the company saw a spike in net profit due to a one-off gain from an associated company.

Cash and debt

Although revenues and profits are important, they do not tell investors the whole story. For instance, the income statement does not show if a company can survive a sustained economic crisis. That is where the balance sheet comes into play, which reveals the health of a company by providing a snapshot of its financial condition.

The table below shows the key figures from Haw Par’s balance sheet over the last five years:Source: S&P Global Market Intelligence

The company is not debt-free, but its debt looks extremely manageable, given its low total-debt-to-equity ratio.

Even though the current ratio is above one, it is too high in my opinion. Cash sitting in the bank can be put to better use. It could be a case where Haw Par does not see any viable opportunities to deploy the money right now.

Cash flow

Many of you may have heard the saying, “Cash is king”. Although the income statement shows the amount of profit a company makes every year, this profit does not necessarily translate into the actual cash that flows into a company’s coffers due to accrual accounting.

Accrual accounting requires businesses to record revenues and expenses when the transactions happen, not when the cash is exchanged. Also, the income statement usually includes non-cash revenues or expenses. To get a true picture of the flow of money in and out of a company, we have to look at the statement of cash flows.

The table below shows the key figures from Haw Par’s statement of cash flows, for the same period as its income statement and balance sheet shown above:Source: S&P Global Market Intelligence

Haw Par managed to generate positive free cash flows in all the five years. Free cash flow is cash that the company can use to dish out dividends to shareholders, buy back shares, make acquisitions, or strengthen its balance sheet, among other things.

In 2017, the company paid out around S$44 million or 20 cents per share in dividend, which equates to about 45% of that year’s free cash flow.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of United Overseas Bank Ltd. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.