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Small-caps and large-caps are wildly popular among investors,what is form os155a however, mid-cap stocks, such as Shui On Land Limited ( HKG:272
), with a market capitalization of HK$16b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Let’s take a look at 272’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Shui On Land’s financial health, so you should conduct further analysis
into 272 here
. View our latest analysis for Shui On Land How much cash does 272 generate through its operations? Over the past year, 272 has reduced its debt from CN¥47b to CN¥34b – this includes long-term debt. With this debt payback, 272 currently has CN¥10b remaining in cash and short-term investments , ready to deploy into the business. Moreover, 272 has produced CN¥4.6b in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 13%, signalling that 272’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 272’s case, it is able to generate 0.13x cash from its debt capital. Can 272 pay its short-term liabilities? At the current liabilities level of CN¥26b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.65x. Usually, for Real Estate companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments. SEHK:272 Historical Debt, March 1st 2019 Does 272 face the risk of succumbing to its debt-load? With debt reaching 69% of equity, 272 may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if 272’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For 272, the ratio of 5.59x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback. Next Steps: 272’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around 272’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how 272 has been performing in the past. You should continue to research Shui On Land to get a more holistic view of the mid-cap by looking at: Story continues Future Outlook : What are well-informed industry analysts predicting for 272’s future growth? Take a look at our free research report of analyst consensus for 272’s outlook. Valuation : What is 272 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 272 is currently mispriced by the market. Other High-Performing Stocks : Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here . We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. If you spot an error that warrants correction, please contact the editor at . This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading. View comments |
