In This Article:
If you are currently a shareholder in Vitasoy International Holdings Limited (HKG:345), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. This difference directly flows down to how much the stock is worth. Operating in the packaged foods and meats industry, 345 is currently valued at HK$26.5b. I’ve analysed below, the health and outlook of 345’s cash flow, which will help you understand the stock from a cash standpoint. Cash is an important concept to grasp as an investor, as it directly impacts the value of your shares and the future growth potential of your portfolio.
Check out our latest analysis for Vitasoy International Holdings
Is Vitasoy International Holdings generating enough cash?
Vitasoy International Holdings’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for Vitasoy International Holdings to continue to grow, or at least, maintain its current operations.
There are two methods I will use to evaluate the quality of Vitasoy International Holdings’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
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
Vitasoy International Holdings’s yield of 2.16% indicates its sub-standard capacity to generate cash, compared to the stock market index as a whole, accounting for the size differential. This means investors are taking on more concentrated risk on Vitasoy International Holdings but are not being adequately rewarded for doing so.
Does Vitasoy International Holdings have a favourable cash flow trend?
Does 345’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, the company is expected to grow its cash from operations at a double-digit rate of 28%, ramping up from its current levels of HK$1.1b to HK$1.4b in three years’ time. Furthermore, breaking down growth into a year on year basis, 345 is able to increase its growth rate each year, from -18% in the upcoming year, to 24% by the end of the third year. The overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.