The size of Ctripcom International Ltd. (NASDAQ:CTRP), a US$22.45B large-cap, often attracts investors seeking a reliable investment in the stock market. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, its financial health remains the key to continued success. I will provide an overview of Ctrip.com International’s financial liquidity and leverage to give you an idea of Ctrip.com International’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into CTRP here. Check out our latest analysis for Ctrip.com International
How does CTRP’s operating cash flow stack up against its debt?
CTRP has built up its total debt levels in the last twelve months, from CN¥41.54B to CN¥45.54B – this includes both the current and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at CN¥46.37B , ready to deploy into the business. Additionally, CTRP has generated cash from operations of CN¥7.07B over the same time period, leading to an operating cash to total debt ratio of 15.52%, indicating that CTRP’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CTRP’s case, it is able to generate 0.16x cash from its debt capital.
Does CTRP’s liquid assets cover its short-term commitments?
With current liabilities at CN¥42.16B, the company has been able to meet these commitments with a current assets level of CN¥59.23B, leading to a 1.4x current account ratio. Usually, for Online Retail companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is CTRP’s debt level acceptable?
With a debt-to-equity ratio of 52.66%, CTRP can be considered as an above-average leveraged company. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. The sustainability of CTRP’s debt levels can be assessed by comparing the company’s interest payments to earnings. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In CTRP’s case, the ratio of 11.61x suggests that interest is comfortably covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as CTRP is a safe investment.
CTRP’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure CTRP has company-specific issues impacting its capital structure decisions. I suggest you continue to research Ctrip.com International to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CTRP’s future growth? Take a look at our free research report of analyst consensus for CTRP’s outlook.
- Valuation: What is CTRP 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 CTRP 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.
To help readers see pass 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.