China Education Group Holdings Limited (HKG:839): Financial Strength Analysis
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as China Education Group Holdings Limited (HKG:839), with a market cap of HK$22.06b, often get neglected by retail investors. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. 839’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. Don’t forget that this is a general and concentrated examination of China Education Group Holdings’s financial health, so you should conduct further analysis into 839 here.
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How much cash does 839 generate through its operations?
839’s debt levels have fallen from CN¥430.3m to CN¥130.0m over the last 12 months . With this reduction in debt, the current cash and short-term investment levels stands at CN¥1.48b , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of 839’s operating efficiency ratios such as ROA here.
Does 839’s liquid assets cover its short-term commitments?
At the current liabilities level of CN¥1.12b liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.39x. Generally, for Consumer Services companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does 839 face the risk of succumbing to its debt-load?
With debt at 2.0% of equity, 839 may be thought of as having low leverage. This range is considered safe as 839 is not taking on too much debt obligation, which may be constraining for future growth. We can test if 839’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 839, the ratio of 62.91x 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.
Next Steps:
Although 839’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. I admit this is a fairly basic analysis for 839’s financial health. Other important fundamentals need to be considered alongside. You should continue to research China Education Group Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 839’s future growth? Take a look at our free research report of analyst consensus for 839’s outlook.
Valuation: What is 839 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 839 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
