Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Vinda International Holdings Limited (HKG:3331), with a market cap of HK$18b, often get neglected by retail investors. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. 3331’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 3331 here.

View our latest analysis for Vinda International Holdings

3331’s Debt (And Cash Flows)

3331 has sustained its debt level by about HK$5.2b over the last 12 months which accounts for long term debt. At this constant level of debt, 3331 currently has HK$677m remaining in cash and short-term investments to keep the business going. Additionally, 3331 has produced cash from operations of HK$1.3b over the same time period, leading to an operating cash to total debt ratio of 25%, meaning that 3331’s current level of operating cash is high enough to cover debt.

Does 3331’s liquid assets cover its short-term commitments?

With current liabilities at HK$5.6b, it seems that the business has been able to meet these commitments with a current assets level of HK$5.8b, leading to a 1.02x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Household Products companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Can 3331 service its debt comfortably?

3331 is a relatively highly levered company with a debt-to-equity of 60%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether 3331 is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In 3331's, case, the ratio of 5.08x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

3331’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around 3331's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure 3331 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Vinda International Holdings to get a more holistic view of the mid-cap by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 3331’s future growth? Take a look at our free research report of analyst consensus for 3331’s outlook.

2. Valuation: What is 3331 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 3331 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.