Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Beijing Capital International Airport Company Limited (HKG:694) with a market-capitalization of HK$28b, rarely draw their attention. 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. Let’s take a look at 694’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Beijing Capital International Airport's financial health, so you should conduct further analysis into 694 here.
694’s Debt (And Cash Flows)
694 has sustained its debt level by about CN¥4.9b over the last 12 months which accounts for long term debt. At this stable level of debt, 694 currently has CN¥2.3b remaining in cash and short-term investments to keep the business going. Moreover, 694 has generated cash from operations of CN¥4.7b over the same time period, leading to an operating cash to total debt ratio of 96%, meaning that 694’s operating cash is sufficient to cover its debt.
Can 694 pay its short-term liabilities?
Looking at 694’s CN¥9.3b in current liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of CN¥4.1b, with a current ratio of 0.44x. The current ratio is the number you get when you divide current assets by current liabilities.
Can 694 service its debt comfortably?
694’s level of debt is appropriate relative to its total equity, at 21%. This range is considered safe as 694 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if 694’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For 694, the ratio of 28.72x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving 694 ample headroom to grow its debt facilities.
694’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. However, its lack of liquidity raises questions over current asset management practices for the mid-cap. I admit this is a fairly basic analysis for 694's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Beijing Capital International Airport to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 694’s future growth? Take a look at our free research report of analyst consensus for 694’s outlook.
- Valuation: What is 694 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 694 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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.