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Stocks with market capitalization between $2B and $10B, such as Luk Fook Holdings (International) Limited (HKG:590) with a size of HK$16b, do not attract as much attention from the investing community as do the small-caps and large-caps. 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. 590’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 590 here.
590’s Debt (And Cash Flows)
590 has increased its debt level by about HK$1.8b over the last 12 months made up of predominantly near term debt. With this ramp up in debt, the current cash and short-term investment levels stands at HK$1.6b to keep the business going. We note it produced negative cash flow over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of 590’s operating efficiency ratios such as ROA here.
Can 590 pay its short-term liabilities?
At the current liabilities level of HK$3.4b, it seems that the business has been able to meet these commitments with a current assets level of HK$11b, leading to a 3.35x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Is 590’s debt level acceptable?
With debt at 18% of equity, 590 may be thought of as appropriately levered. 590 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
590’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. 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 590 has company-specific issues impacting its capital structure decisions. You should continue to research Luk Fook Holdings (International) to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 590’s future growth? Take a look at our free research report of analyst consensus for 590’s outlook.
- Valuation: What is 590 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 590 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.