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Tianyun International Holdings Limited (HKG:6836) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. This difference directly flows down to how much the stock is worth. Operating in the packaged foods and meats industry, 6836 is currently valued at HK$1.02b. I will take you through 6836’s cash flow health and the risk-return concept based on the stock’s cash flow yield, using the most recent financial data. This will help you think about the company from a cash perspective, which is a crucial factor to investing.
See our latest analysis for Tianyun International Holdings
What is free cash flow?
Free cash flow (FCF) is the amount of cash Tianyun International Holdings has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.
I will be analysing Tianyun International Holdings’s FCF by looking at its FCF yield and its operating cash flow growth. The yield will tell us whether the stock is generating enough cash to compensate for the risk investors take on by holding a single stock, which I will compare to the market index. The growth will proxy for sustainability levels of this cash generation.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
Although, Tianyun International Holdings generate sufficient cash from its operational activities, its FCF yield of 8.61% is roughly in-line with the broader market’s high single-digit yield. This means investors are being compensated at the same level as they would be if they just held the well-diversified market index.
Does Tianyun International Holdings have a favourable cash flow trend?
Does 6836’s future look brighter in terms of its ability to generate higher operating cash flows? This can be estimated by examining the trend of the company’s operating cash flow moving forward. In the next few years, 6836’s operating cash flows is expected to more than double from the current level of CN¥112.3m, which is highly optimistic, so long as capital expenditure doesn’t ramp up by even more. Although this seems impressive, breaking down into year-on-year growth rates, 6836’s operating cash flow growth is expected to decline from a rate of 29.4% in the upcoming year, to 13.2% by the end of the third year.