Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Nan Hai Corporation Limited (SEHK:680) with a market-capitalization of HK$16.68B, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. 680’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 680 here. See our latest analysis for Nan Hai
How does 680’s operating cash flow stack up against its debt?
680’s debt levels surged from HK$10,070.2M to HK$15,467.4M over the last 12 months – this includes both the current and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at HK$2,948.6M for investing into the business. Additionally, 680 has generated HK$4,788.9M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 30.96%, indicating that 680’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 680’s case, it is able to generate 0.31x cash from its debt capital.
Can 680 pay its short-term liabilities?
Looking at 680’s most recent HK$16,948.3M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.25x. Generally, for Media companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is 680’s debt level acceptable?
With total debt exceeding equities, 680 is considered a highly levered company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether 680 is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In 680’s, case, the ratio of 11.26x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as 680’s high interest coverage is seen as responsible and safe practice.