Yong Beng Ong asked 7 months ago
Hi,
As I was shortlisting stocks using Yahoo finance based on what the course teaches me, there's something I don't quite understand.
Companies like HGH Holdings Ltd (5GZ.SI), they have a Net Debt Position. I then went on to check their Debt To Operation Cashflow but noticed that their cashflow from operation is negative. Should that be a red flag?
However with another company like Great Eastern Holdings Limited (G07.SI), although they are in a cash position, their cash flow from operation is also negative. Don't think a company like Great Eastern should be a red flag right?
Not quite understand if I should still shortlist the companies if they have negative cashflow from operations then?
Thank you!
1 Answers
Victor Chng Staff answered 7 months ago
Hi Yong Beng,
When looking at operating cash flow, you need to review past history to identify trends. In the case of HGH, the latest year shows negative operating cash flow, while previous years were positive.
If it’s a one-off situation, you need to understand the reason. For HGH, it appears to be due to delayed collection of receivables. A single year of negative operating cash flow is usually not a red flag, but if it remains negative for more than two years, that’s definitely something to investigate further.
The Alpha Quadrant method can be used to analyze about 80% of the stock universe. However, the remaining 20% such as banks, insurance companies, REITs, and other financial institutions require a different set of metrics and analytical approaches.
For example, insurance companies generate income from premiums and investments, which are not always reflected directly in operating cash flow but rather through their investment returns.
Yong Beng Ong
replied 7 months ago Ah got it! Thank you!
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