Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Sino Land Company Limited (HKG:83). With a market valuation of HK$84b, 83 is a safe haven in times of market uncertainty due to its strong balance sheet. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Today I will analyse the latest financial data for 83 to determine is solvency and liquidity and whether the stock is a sound investment.
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How much cash does 83 generate through its operations?
Over the past year, 83 has reduced its debt from HK$5.9b to HK$2.4b , which includes long-term debt. With this reduction in debt, 83’s cash and short-term investments stands at HK$22b , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of 83’s operating efficiency ratios such as ROA here.
Does 83’s liquid assets cover its short-term commitments?
With current liabilities at HK$12b, the company has been able to meet these commitments with a current assets level of HK$53b, leading to a 4.39x current account ratio. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Is 83’s debt level acceptable?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for large-cap stocks is considered as financially healthy, as a rule of thumb. With debt at 1.7% of equity, 83 may be thought of as having low leverage. 83 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
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83’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. Keep in mind I haven’t considered other factors such as how 83 has been performing in the past. I recommend you continue to research Sino Land to get a more holistic view of the stock by looking at: