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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Semiconductor Manufacturing International Corporation (SEHK:981), with a market cap of HK$56.62B, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. 981’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 981 here. See our latest analysis for Semiconductor Manufacturing International
Does 981 generate an acceptable amount of cash through operations?
981 has built up its total debt levels in the last twelve months, from US$3.11B to US$3.32B – this includes both the current and long-term debt. With this growth in debt, 981 currently has US$2.52B remaining in cash and short-term investments for investing into the business. Moreover, 981 has produced cash from operations of US$1.08B during the same period of time, leading to an operating cash to total debt ratio of 32.59%, indicating that 981’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 981’s case, it is able to generate 0.33x cash from its debt capital.
Does 981’s liquid assets cover its short-term commitments?
Looking at 981’s most recent US$1.91B liabilities, the company has been able to meet these obligations given the level of current assets of US$4.17B, with a current ratio of 2.19x. For Semiconductor companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can 981 service its debt comfortably?
With debt reaching 50.17% of equity, 981 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.
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981’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 981’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for 981’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Semiconductor Manufacturing International to get a more holistic view of the mid-cap by looking at: