In This Article:
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as China Railway Signal & Communication Corporation Limited (HKG:3969), with a market cap of HK$48.1b, often get neglected by retail investors. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. 3969’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 3969 here.
View our latest analysis for China Railway Signal & Communication
How much cash does 3969 generate through its operations?
Over the past year, 3969 has ramped up its debt from CN¥594m to CN¥3.5b – this includes both the current and long-term debt. With this rise in debt, 3969 currently has CN¥12.3b remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of 3969’s operating efficiency ratios such as ROA here.
Can 3969 meet its short-term obligations with the cash in hand?
At the current liabilities level of CN¥44.6b liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.33x. For Electronic 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.
Does 3969 face the risk of succumbing to its debt-load?
With debt at 13% of equity, 3969 may be thought of as appropriately levered. 3969 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
Next Steps:
3969’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure 3969 has company-specific issues impacting its capital structure decisions. You should continue to research China Railway Signal & Communication to get a more holistic view of the stock by looking at: