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Stocks with market capitalization between $2B and $10B, such as Alibaba Pictures Group Limited (HKG:1060) with a size of HK$29b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Let’s take a look at 1060’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 1060 here.
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Does 1060 produce enough cash relative to debt?
Over the past year, 1060 has reduced its debt from CN¥1.0b to CN¥743m , which comprises of short- and long-term debt. With this debt payback, 1060 currently has CN¥5.8b remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 1060’s operating efficiency ratios such as ROA here.
Can 1060 pay its short-term liabilities?
With current liabilities at CN¥1.4b, it appears that the company has been able to meet these obligations given the level of current assets of CN¥8.3b, with a current ratio of 5.98x. Having said that, anything above 3x may be considered excessive by some investors.
Is 1060’s debt level acceptable?
With debt at 5.3% of equity, 1060 may be thought of as having low leverage. 1060 is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is virtually non-existent with 1060, and the company has plenty of headroom and ability to raise debt should it need to in the future.
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Although 1060’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. 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 1060 has company-specific issues impacting its capital structure decisions. You should continue to research Alibaba Pictures Group to get a better picture of the stock by looking at: