In This Article:
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Luye Pharma Group Ltd (SEHK:2186), with a market capitalization of HK$26.79B, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine 2186’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 2186 here. Check out our latest analysis for Luye Pharma Group
Does 2186 generate enough cash through operations?
2186’s debt levels surged from CN¥1.62B to CN¥2.86B over the last 12 months made up of predominantly near term debt. With this rise in debt, 2186’s cash and short-term investments stands at CN¥2.73B for investing into the business. On top of this, 2186 has generated cash from operations of CN¥964.10M in the last twelve months, resulting in an operating cash to total debt ratio of 33.69%, indicating that 2186’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 2186’s case, it is able to generate 0.34x cash from its debt capital.
Does 2186’s liquid assets cover its short-term commitments?
At the current liabilities level of CN¥3.65B liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.72x. For Pharmaceuticals companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Is 2186’s debt level acceptable?
With a debt-to-equity ratio of 41.49%, 2186 can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses.
Next Steps:
Although 2186’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around 2186’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for 2186’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Luye Pharma Group to get a more holistic view of the mid-cap by looking at: