Take the sensible and reasonable approach to ensure funds are available
IN technical terms, financial stability is a characteristic of a financial system that reduces imbalances brought on by substantial unfavourable events or innate market fluctuations. For the individual, it might just mean not worrying about paying bills because of available savings.
For companies, it is somewhat more complicated as the mismanagement of funds could cause financial distress. A healthy company manages its funds well and hence, it is one of the quantitative attributes of the Top-of-the-Chart (TOTC) Award.
TOTC quantitative rankings - Stability
The stability attribute is based on how the company manages its available cash over a three-year period from 2019 to 2021, with 2018 serving as the base year. Companies that register consistent positive growths over the three years are given preference. The companies are also assessed on their debt-to-total-asset ratio, with preference given to companies scoring a lower percentage.
It is important to note that having a debt-to-total-asset ratio is equally undesirable as it signifies that the company is not maximising its available funds. Having a range of 10% to 40% for the ratio is preferred.
In the RM1bil and above category, Sime Darby Property Bhd achieved three consecutive years of positive cash-in-hand growth while its debt-to-total-asset ratio stood just below the 40% threshold at 37.48%. While this figure appears quite high, the company has sufficient funds to offset its debt if required. This puts Sime Darby Property in top spot for this attribute.
Of the top 10 rankers in the RM1bil and above category, OSK Holdings was the only company that saw three years of positive cash growth. However, its debt-to-total-asset ratio stood at 39.1%, placing it second on the list.
Similarly, in the TOTC below RM1bil category, AYER Holdings Bhd also achieved three consecutive years of positive cash growth and a debt-to-total-asset ratio of 10.62%. This places it at the top for this attribute. It is the only company to achieve three consecutive years of positive cash growth.
However, it must be noted that several companies utilised their cash-in-hand to ride the negative effects of the Covid-19 pandemic and it does not mean that they were less financially stable.