Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Yangtze Optical Fibre And Cable Joint Stock Limited Company (SEHK:6869) with a market-capitalization of HK$25.85B, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. 6869’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 6869 here. View our latest analysis for Yangtze Optical Fibre And Cable Joint Stock Limited

How does 6869’s operating cash flow stack up against its debt?

6869 has shrunken its total debt levels in the last twelve months, from CN¥2,457.4M to CN¥1,756.4M , which comprises of short- and long-term debt. With this debt repayment, 6869 currently has CN¥1,471.4M remaining in cash and short-term investments , ready to deploy into the business. Moreover, 6869 has generated CN¥1,303.4M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 74.21%, meaning that 6869’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 6869’s case, it is able to generate 0.74x cash from its debt capital.

Can 6869 pay its short-term liabilities?

With current liabilities at CN¥2,635.8M, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.76x. For Communications companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Is 6869’s debt level acceptable?

With debt at 35.51% of equity, 6869 may be thought of as appropriately levered. This range is considered safe as 6869 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if 6869’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For 6869, the ratio of 22.3x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as 6869’s high interest coverage is seen as responsible and safe practice.