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WH Group Limited (SEHK:288), a large-cap worth HK$119.95B, comes to mind for investors seeking a strong and reliable stock investment. One reason being its ‘too big to fail’ aura which gives it the appearance of a strong and stable investment. But, the health of the financials determines whether the company continues to succeed. Let’s take a look at WH Group’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 288 here. See our latest analysis for WH Group
How does 288’s operating cash flow stack up against its debt?
288’s debt levels surged from US$2.90B to US$3.23B over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, 288’s cash and short-term investments stands at US$1.37B for investing into the business. On top of this, 288 has produced US$1.51B in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 46.87%, signalling that 288’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 288’s case, it is able to generate 0.47x cash from its debt capital.
Does 288’s liquid assets cover its short-term commitments?
With current liabilities at US$3.50B, it appears that the company has been able to meet these commitments with a current assets level of US$5.67B, leading to a 1.62x current account ratio. Generally, for Food companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is 288’s debt level acceptable?
With debt at 39.24% of equity, 288 may be thought of as appropriately levered. 288 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether 288 is able to meet its debt obligations by looking at the net interest coverage ratio. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. For 288, the ratio of 15.9x suggests that interest is comfortably covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like 288 are considered a risk-averse investment.
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288’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for 288’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research WH Group to get a more holistic view of the stock by looking at: