A market capitalization of HK$85.52B puts Sino Land Company Limited (SEHK:83) in the basket of stocks categorized as large-caps. These stocks draw significant attention from the investing community due to its size and liquidity. However, a more fundamental aspect of investing in large caps is its financial health. There are always disruptions which destabilize an existing industry, and although large-caps are hard to knock down, it is useful to understand its level of resilience. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know. Check out our latest analysis for Sino Land
Can 83 service its debt comfortably?
Debt-to-equity ratio standards differ between industries, as some some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. 83’s debt-to-equity ratio stands at 4.59%, which means debt is low and does not pose any significant threat to the company’s operations.
Does 83 generate enough cash through operations?
A simple way to determine whether the company has put debt into good use is to look at its operating cash flow against its debt obligation. This also assesses 83’s debt repayment capacity, which is not a big concern for a large company. Last year, 83’s operating cash flow was 0.82x its current debt. This is a good sign, as over half of 83’s near term debt can be covered by its day-to-day cash income, which reduces its riskiness to its debtholders.
Next Steps:
Are you a shareholder? Although 83’s debt level is relatively low, it has the ability to efficiently utilise its borrowings to generate ample cash flow coverage. Since 83’s capital structure may change, I suggest assessing market expectations for 83’s future growth on our free analysis platform.
Are you a potential investor? While understanding the serviceability of debt is important when evaluating which companies are viable investments, it shouldn’t be the deciding factor. After all, debt is often used to fund or accelerate new projects that are expected to improve a company’s growth trajectory in the longer term. This is why You should continue to look at 83’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.