Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Vitasoy International Holdings Limited (HKG:345), with a market cap of HK$42b, often get neglected by retail investors. 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. Let’s take a look at 345’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 345 here.
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345’s Debt (And Cash Flows)
345's debt levels surged from HK$29m to HK$63m over the last 12 months , which is mainly comprised of near term debt. With this increase in debt, 345 currently has HK$977m remaining in cash and short-term investments to keep the business going. Additionally, 345 has generated HK$1.1b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 1814%, indicating that 345’s operating cash is sufficient to cover its debt.
Does 345’s liquid assets cover its short-term commitments?
With current liabilities at HK$2.2b, it appears that the company has been able to meet these obligations given the level of current assets of HK$2.8b, with a current ratio of 1.29x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Food 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 345 service its debt comfortably?
With a debt-to-equity ratio of 1.9%, 345's debt level is relatively low. 345 is not taking on too much debt commitment, which may be constraining for future growth.
345’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I'm sure 345 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Vitasoy International Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 345’s future growth? Take a look at our free research report of analyst consensus for 345’s outlook.
- Valuation: What is 345 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 345 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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