Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as China Oriental Group Company Limited (HKG:581), with a market capitalization of HK$23.08b, rarely draw their attention from the investing community. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. 581’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 Oriental Group’s financial health, so you should conduct further analysis into 581 here. Check out our latest analysis for China Oriental Group
How does 581’s operating cash flow stack up against its debt?
Over the past year, 581 has reduced its debt from HK$2.61b to HK$2.38b – this includes both the current and long-term debt. With this debt repayment, 581’s cash and short-term investments stands at HK$5.67b for investing into the business. Additionally, 581 has generated cash from operations of HK$4.49b over the same time period, leading to an operating cash to total debt ratio of 188.34%, signalling that 581’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 581’s case, it is able to generate 1.88x cash from its debt capital.
Does 581’s liquid assets cover its short-term commitments?
Looking at 581’s most recent HK$9.91b liabilities, it seems that the business has been able to meet these obligations given the level of current assets of HK$14.96b, with a current ratio of 1.51x. Generally, for Metals and Mining companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 581 service its debt comfortably?
With a debt-to-equity ratio of 16.91%, 581’s debt level may be seen as prudent. This range is considered safe as 581 is not taking on too much debt obligation, which may be constraining for future growth.
581’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how 581 has been performing in the past. I recommend you continue to research China Oriental Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 581’s future growth? Take a look at our free research report of analyst consensus for 581’s outlook.
- Valuation: What is 581 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 581 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.