Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Great Eagle Holdings Limited (HKG:41), with a market cap of HK$27b, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. 41’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 41 here.

Check out our latest analysis for Great Eagle Holdings

41’s Debt (And Cash Flows)

41's debt level has been constant at around HK$31b over the previous year including long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at HK$9.8b to keep the business going. Additionally, 41 has generated cash from operations of HK$3.3b over the same time period, resulting in an operating cash to total debt ratio of 11%, indicating that 41’s current level of operating cash is not high enough to cover debt.

Can 41 pay its short-term liabilities?

At the current liabilities level of HK$9.2b, the company has been able to meet these obligations given the level of current assets of HK$17b, with a current ratio of 1.8x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Real Estate companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.

Is 41’s debt level acceptable?

With debt at 34% of equity, 41 may be thought of as appropriately levered. This range is considered safe as 41 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether 41 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 41's, case, the ratio of 5.24x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as 41’s high interest coverage is seen as responsible and safe practice.

Next Steps:

Although 41’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I'm sure 41 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Great Eagle Holdings to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 41’s future growth? Take a look at our free research report of analyst consensus for 41’s outlook.

2. Valuation: What is 41 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 41 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.