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How Financially Strong Is Semiconductor Manufacturing International Corporation (HKG:981)?

Mid-caps stocks, like Semiconductor Manufacturing International Corporation (HKG:981) with a market capitalization of HK$35.9b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. This article will examine 981’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 981 here.

Check out our latest analysis for Semiconductor Manufacturing International

How does 981’s operating cash flow stack up against its debt?

Over the past year, 981 has ramped up its debt from US$2.9b to US$3.4b , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$2.7b for investing into the business. Additionally, 981 has produced US$894m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 26%, indicating that 981’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 981’s case, it is able to generate 0.26x cash from its debt capital.

Can 981 meet its short-term obligations with the cash in hand?

Looking at 981’s most recent US$2.4b liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$4.8b, leading to a 1.98x current account ratio. Generally, for Semiconductor companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.

SEHK:981 Historical Debt November 7th 18

Can 981 service its debt comfortably?

981 is a relatively highly levered company with a debt-to-equity of 45%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible.

Next Steps:

981’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for 981’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Semiconductor Manufacturing International to get a better picture of the mid-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 981’s future growth? Take a look at our free research report of analyst consensus for 981’s outlook.
  2. Historical Performance: What has 981’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.
  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 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.