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Mid-caps stocks, like Xinyi Glass Holdings Limited (HKG:868) with a market capitalization of HK$35.4b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine 868’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 Xinyi Glass Holdings’s financial health, so you should conduct further analysis into 868 here.
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Does 868 produce enough cash relative to debt?
Over the past year, 868 has ramped up its debt from HK$7.9b to HK$8.8b , which comprises of short- and long-term debt. With this rise in debt, 868’s cash and short-term investments stands at HK$4.3b , ready to deploy into the business. Moreover, 868 has produced cash from operations of HK$5.1b over the same time period, resulting in an operating cash to total debt ratio of 58%, signalling that 868’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 868’s case, it is able to generate 0.58x cash from its debt capital.
Can 868 pay its short-term liabilities?
At the current liabilities level of HK$6.7b liabilities, it appears that the company has been able to meet these obligations given the level of current assets of HK$9.2b, with a current ratio of 1.36x. For Auto Components companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is 868’s debt level acceptable?
With debt reaching 47% of equity, 868 may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In 868’s case, the ratio of 37.46x suggests that interest is comfortably 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.