Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Greentown Service Group Co Ltd (HKG:2869), with a market capitalization of HK$17.44b, rarely draw their attention from the investing community. 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. This article will examine 2869’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 2869 here.

See our latest analysis for Greentown Service Group

Does 2869 face the risk of succumbing to its debt-load?

Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For 2869, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with 2869, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Can 2869 pay its short-term liabilities?

Since Greentown Service Group doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. With current liabilities at CN¥2.60b, the company has been able to meet these commitments with a current assets level of CN¥3.39b, leading to a 1.3x current account ratio. Generally, for Commercial Services companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Next Steps:

2869 has zero-debt in addition to ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and its investors, however, some level of debt could also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I’m sure 2869 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Greentown Service Group to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 2869’s future growth? Take a look at our free research report of analyst consensus for 2869’s outlook.

2. Valuation: What is 2869 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 2869 is currently mispriced by the market.

3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.