Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as China Oriental Group Company Limited (HKG:581) with a market-capitalization of HK$18b, rarely draw their attention. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. This article will examine 581’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. Don’t forget that this is a general and concentrated examination of China Oriental Group’s financial health, so you should conduct further analysis into 581 here.

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How does 581’s operating cash flow stack up against its debt?

581’s debt level has been constant at around CN¥1.9b over the previous year including long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at CN¥6.3b , ready to deploy into the business. Additionally, 581 has generated CN¥5.4b in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 285%, meaning that 581’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 581’s case, it is able to generate 2.85x cash from its debt capital.

Can 581 pay its short-term liabilities?

With current liabilities at CN¥9.4b, it seems that the business has been able to meet these obligations given the level of current assets of CN¥17b, with a current ratio of 1.76x. For Metals and Mining companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.

Is 581’s debt level acceptable?

With a debt-to-equity ratio of 11%, 581’s debt level may be seen as prudent. This range is considered safe as 581 is not taking on too much debt obligation, which may be constraining for future growth.

Next Steps:

581’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for 581’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research China Oriental Group to get a more holistic view of the stock by looking at: