Stocks with market capitalization between $2B and $10B, such as Bosideng International Holdings Limited (HKG:3998) with a size of HK$21b, do not attract as much attention from the investing community as do the small-caps and large-caps. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine 3998’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 3998 here.

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See our latest analysis for Bosideng International Holdings

Does 3998 Produce Much Cash Relative To Its Debt?

3998 has built up its total debt levels in the last twelve months, from CN¥2.1b to CN¥2.4b . With this rise in debt, the current cash and short-term investment levels stands at CN¥4.3b , ready to be used for running the business. Moreover, 3998 has generated cash from operations of CN¥855m over the same time period, resulting in an operating cash to total debt ratio of 36%, signalling that 3998’s current level of operating cash is high enough to cover debt.

Can 3998 pay its short-term liabilities?

Looking at 3998’s CN¥5.0b in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of CN¥11b, with a current ratio of 2.19x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Luxury companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.

Can 3998 service its debt comfortably?

With a debt-to-equity ratio of 25%, 3998's debt level may be seen as prudent. This range is considered safe as 3998 is not taking on too much debt obligation, which may be constraining for future growth.

Next Steps:

3998 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for 3998's financial health. Other important fundamentals need to be considered alongside. You should continue to research Bosideng International Holdings to get a more holistic view of the stock by looking at: