Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Sinopec Shanghai Petrochemical Company Limited (HKG:338), with a market cap of HK$60.8b, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at 338’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 338 here.
How does 338’s operating cash flow stack up against its debt?
338 has built up its total debt levels in the last twelve months, from CN¥613m to CN¥1.4b , which is mainly comprised of near term debt. With this growth in debt, the current cash and short-term investment levels stands at CN¥14.6b , ready to deploy into the business. Additionally, 338 has generated CN¥8.9b in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 641%, meaning that 338’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 338’s case, it is able to generate 6.41x cash from its debt capital.
Can 338 pay its short-term liabilities?
Looking at 338’s most recent CN¥16.8b liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.56x. Generally, for Chemicals companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can 338 service its debt comfortably?
With a debt-to-equity ratio of 4.8%, 338’s debt level is relatively low. 338 is not taking on too much debt commitment, which may be constraining for future growth.
338’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. 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 338 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Sinopec Shanghai Petrochemical to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 338’s future growth? Take a look at our free research report of analyst consensus for 338’s outlook.
- Valuation: What is 338 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 338 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 email@example.com.