Stocks with market capitalization between $2B and $10B, such as China Biologic Products Holdings Inc (NASDAQ:CBPO) with a size of US$2.81B, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at CBPO’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into CBPO here. View our latest analysis for China Biologic Products Holdings
Does CBPO face the risk of succumbing to its debt-load?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For CBPO, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with CBPO, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Can CBPO meet its short-term obligations with the cash in hand?
Since China Biologic Products Holdings doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at CBPO’s most recent US$97.64M liabilities, the company has been able to meet these commitments with a current assets level of US$593.12M, leading to a 6.07x current account ratio. However, anything above 3x is considered high and could mean that CBPO has too much idle capital in low-earning investments.
CBPO has no debt as well as ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and its investors, but some degree of debt could also boost earnings growth and operational efficiency. Keep in mind I haven’t considered other factors such as how CBPO has performed in the past. You should continue to research China Biologic Products Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CBPO’s future growth? Take a look at our free research report of analyst consensus for CBPO’s outlook.
- Valuation: What is CBPO 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 CBPO is currently mispriced by the market.
- 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.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.