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Mid-caps stocks, like SSY Group Limited (HKG:2005) with a market capitalization of HK$22.00b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine 2005’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. Don’t forget that this is a general and concentrated examination of SSY Group’s financial health, so you should conduct further analysis into 2005 here.
View our latest analysis for SSY Group
Does 2005 produce enough cash relative to debt?
2005’s debt levels have fallen from HK$1.65b to HK$1.05b over the last 12 months – this includes both the current and long-term debt. With this debt payback, 2005’s cash and short-term investments stands at HK$691.7m for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of 2005’s operating efficiency ratios such as ROA here.
Can 2005 meet its short-term obligations with the cash in hand?
With current liabilities at HK$1.03b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.53x. Generally, for Pharmaceuticals companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 2005 service its debt comfortably?
2005’s level of debt is appropriate relative to its total equity, at 25.0%. 2005 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether 2005 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 2005’s, case, the ratio of 18.04x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as 2005’s high interest coverage is seen as responsible and safe practice.