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With a market capitalization of HK$125b, Power Assets Holdings Limited (HKG:6) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there's plenty of stocks available to the public for trading. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Today I will analyse the latest financial data for 6 to determine is solvency and liquidity and whether the stock is a sound investment.
6’s Debt (And Cash Flows)
6's debt levels have fallen from HK$7.2b to HK$3.6b over the last 12 months , which includes long-term debt. With this debt payback, 6's cash and short-term investments stands at HK$5.3b , ready to be used for running the business. On top of this, 6 has generated cash from operations of HK$2.6b in the last twelve months, resulting in an operating cash to total debt ratio of 71%, signalling that 6’s current level of operating cash is high enough to cover debt.
Can 6 meet its short-term obligations with the cash in hand?
At the current liabilities level of HK$4.1b, it seems that the business has been able to meet these commitments with a current assets level of HK$5.5b, leading to a 1.34x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Electric Utilities companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Is 6’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. With debt at 4.3% of equity, 6 may be thought of as having low leverage. 6 is not taking on too much debt commitment, which may be constraining for future growth.
6 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure 6 has company-specific issues impacting its capital structure decisions. You should continue to research Power Assets Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 6’s future growth? Take a look at our free research report of analyst consensus for 6’s outlook.
- Valuation: What is 6 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 6 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.