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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Brilliance China Automotive Holdings Limited (HKG:1114), with a market cap of HK$41b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine 1114’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 1114 here.
Check out our latest analysis for Brilliance China Automotive Holdings
Does 1114 Produce Much Cash Relative To Its Debt?
1114's debt level has been constant at around CN¥5.1b over the previous year – this includes long-term debt. At this constant level of debt, 1114 currently has CN¥2.9b remaining in cash and short-term investments , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can assess some of 1114’s operating efficiency ratios such as ROA here.
Can 1114 pay its short-term liabilities?
At the current liabilities level of CN¥10b, the company may not have an easy time meeting these commitments with a current assets level of CN¥9.3b, leading to a current ratio of 0.92x. The current ratio is the number you get when you divide current assets by current liabilities.
Does 1114 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 16%, 1114's debt level may be seen as prudent. This range is considered safe as 1114 is not taking on too much debt obligation, which may be constraining for future growth.
Next Steps:
1114’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. This is only a rough assessment of financial health, and I'm sure 1114 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Brilliance China Automotive Holdings to get a better picture of the stock by looking at: