Stocks with market capitalization between $2B and $10B, such as China Biologic Products Holdings Inc (NASDAQ:CBPO) with a size of $2.22B, do not attract as much attention from the investing community as do the small-caps and large-caps. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Mid-caps are found to be more volatile than the large-caps but safer than small-caps, largely due to their weaker balance sheet. I will take you through a few basic checks to assess the financial health of companies with no debt. View our latest analysis for China Biologic Products Holdings
Is CBPO’s level of debt at an acceptable level?
While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. The good news for investors is that China Biologic Products Holdings has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Whether it’s an issue of access to debt or management choosing not to borrow, investors risk associated with debt issues is virtually non-existent with CBPO.
Does CBPO’s liquid assets cover its short-term commitments?
Since China Biologic Products Holdings doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues. Solvency is word for 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. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. Our analysis shows that CBPO is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Are you a shareholder? CBPO has no debt as well as ample cash to cover its near-term liabilities such as salary and supplier payments. While it’s safe operations might reduce risk for the company and investors, some degree of debt could also boost earnings growth and operational efficiency. Since CBPO’s financial situation could change over time, I encourage assessing market expectations for CBPO’s future growth on our free analysis platform.
Are you a potential investor? While investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. Ultimately, debt financing is an important source of funding for companies seeking to grow through new projects and investments. CBPO’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
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.