How Financially Strong Is BYD Company Limited (HKG:1211)?
The size of BYD Company Limited (SEHK:1211), a HK$208.79B large-cap, often attracts investors seeking a reliable investment in the stock market. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. But, its financial health remains the key to continued success. I will provide an overview of BYD’s financial liquidity and leverage to give you an idea of BYD’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into 1211 here. Check out our latest analysis for BYD
How much cash does 1211 generate through its operations?
1211’s debt levels surged from CN¥37,642.8M to CN¥42,267.0M over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, 1211 currently has CN¥7,693.7M remaining in cash and short-term investments for investing 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. For this article’s sake, I won’t be looking at this today, but you can examine some of 1211’s operating efficiency ratios such as ROA here.
Can 1211 pay its short-term liabilities?
With current liabilities at CN¥78,317.6M, it appears that the company has not been able to meet these commitments with a current assets level of CN¥78,240.1M, leading to a 1x current account ratio. which is under the appropriate industry ratio of 3x.
Does 1211 face the risk of succumbing to its debt-load?
With debt reaching 95.57% of equity, 1211 may be thought of as relatively highly levered. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. In 1211’s case, the ratio of 3.17x suggests that interest is well-covered. Large-cap investments like 1211 are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
With a high level of debt on its balance sheet, 1211 could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for 1211 to increase its operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the large-cap. This is only a rough assessment of financial health, and I’m sure 1211 has company-specific issues impacting its capital structure decisions. You should continue to research BYD to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for 1211’s future growth? Take a look at our free research report of analyst consensus for 1211’s outlook.
2. Valuation: What is 1211 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 1211 is currently mispriced by the market.
3. 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.
