Two important questions to ask before you buy China Everbright Water Limited (SGX:U9E) is, how it makes money and how it spends its cash. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I’ve analysed below, the health and outlook of U9E’s cash flow, which will help you understand the stock from a cash standpoint. Cash is an important concept to grasp as an investor, as it directly impacts the value of your shares and the future growth potential of your portfolio.
Is China Everbright Water generating enough cash?
China Everbright Water’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for China Everbright Water to continue to grow, or at least, maintain its current operations.
The two ways to assess whether China Everbright Water’s FCF is sufficient, is to compare the FCF yield to the market index yield, as well as determine whether the top-line operating cash flows will continue to grow.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
After accounting for capital expenses required to run the business, China Everbright Water is not able to generate positive FCF, leading to a negative FCF yield – not very useful for interpretation!
Does China Everbright Water have a favourable cash flow trend?
Can China Everbright Water improve its operating cash production in the future? Let’s take a quick look at the cash flow trend China Everbright Water is expected to deliver over time. In the next few years, the company is expected to grow its cash from operations at a double-digit rate of 16.6%, ramping up from its current levels of -HK$732.1m to -HK$853.6m in two years’ time. Furthermore, breaking down growth into a year on year basis, U9E is able to increase its growth rate each year, from -17.2% next year, to 40.9% in the following year. The overall future outlook seems buoyant if U9E can maintain its levels of capital expenditure as well.
Now you know to keep cash flows in mind, You should continue to research China Everbright Water to get a more holistic view of the company by looking at:
- Historical Performance: What has U9E’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on China Everbright Water’s board and the CEO’s back ground.
- Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through 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 email@example.com.