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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Innovent Biologics, Inc. (HKG:1801), with a market cap of HK$30b, often get neglected by retail investors. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. 1801’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 1801 here.
Does 1801 Produce Much Cash Relative To Its Debt?
1801's debt levels have fallen from CN¥3.6b to CN¥792m over the last 12 months – this includes long-term debt. With this debt payback, 1801's cash and short-term investments stands at CN¥4.6b , ready to be used for running the business. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. For this article’s sake, I won’t be looking at this today, but you can take a look at some of 1801’s operating efficiency ratios such as ROA here.
Can 1801 meet its short-term obligations with the cash in hand?
With current liabilities at CN¥670m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 6.99x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio greater than 3x may be considered high by some.
Is 1801’s debt level acceptable?
With a debt-to-equity ratio of 19%, 1801's debt level may be seen as prudent. 1801 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors' risk associated with debt is very low with 1801, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Although 1801’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 exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I'm sure 1801 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Innovent Biologics to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 1801’s future growth? Take a look at our free research report of analyst consensus for 1801’s outlook.
- Valuation: What is 1801 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 1801 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.