Is Shanghai Electric Group Company Limited (HKG:2727) A Financially Strong Company?
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Shanghai Electric Group Company Limited (HKG:2727), with a market cap of HK$78.3b, often get neglected by retail investors. 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. This article will examine 2727’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 2727 here.
View our latest analysis for Shanghai Electric Group
How much cash does 2727 generate through its operations?
2727’s debt levels surged from CN¥15.1b to CN¥26.0b over the last 12 months , which is made up of current and long term debt. With this increase in debt, 2727 currently has CN¥38.9b remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of 2727’s operating efficiency ratios such as ROA here.
Does 2727’s liquid assets cover its short-term commitments?
At the current liabilities level of CN¥115.8b liabilities, it appears that the company has been able to meet these commitments with a current assets level of CN¥150.2b, leading to a 1.3x current account ratio. Usually, for Electrical companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 2727 service its debt comfortably?
With debt at 36% of equity, 2727 may be thought of as appropriately levered. This range is considered safe as 2727 is not taking on too much debt obligation, which may be constraining for future growth.
Next Steps:
2727’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how 2727 has been performing in the past. I recommend you continue to research Shanghai Electric Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 2727’s future growth? Take a look at our free research report of analyst consensus for 2727’s outlook.
Valuation: What is 2727 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 2727 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
