Stocks with market capitalization between $2B and $10B, such as China Railway Signal & Communication Corporation Limited (HKG:3969) with a size of HK$56b, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. 3969’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 3969 here.
3969’s Debt (And Cash Flows)
3969's debt levels surged from CN¥1.9b to CN¥2.3b over the last 12 months – this includes long-term debt. With this increase in debt, 3969 currently has CN¥12b remaining in cash and short-term investments to keep the business going. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can examine some of 3969’s operating efficiency ratios such as ROA here.
Can 3969 pay its short-term liabilities?
With current liabilities at CN¥48b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.37x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Electronic companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Does 3969 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 7.6%, 3969's debt level is relatively low. 3969 is not taking on too much debt commitment, which may be constraining for future growth.
Although 3969’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. I admit this is a fairly basic analysis for 3969's financial health. Other important fundamentals need to be considered alongside. You should continue to research China Railway Signal & Communication to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 3969’s future growth? Take a look at our free research report of analyst consensus for 3969’s outlook.
- Valuation: What is 3969 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 3969 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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