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Is WH Group Limited (HKG:288) As Strong As Its Balance Sheet Indicates?

Simply Wall St

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WH Group Limited (HKG:288), a large-cap worth HK$114b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Assessing the most recent data for 288, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.

Check out our latest analysis for WH Group

Does 288 Produce Much Cash Relative To Its Debt?

288's debt level has been constant at around US$3.1b over the previous year including long-term debt. At this current level of debt, the current cash and short-term investment levels stands at US$842m , ready to be used for running the business. Moreover, 288 has produced US$1.3b in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 40%, meaning that 288’s operating cash is sufficient to cover its debt.

Can 288 meet its short-term obligations with the cash in hand?

With current liabilities at US$3.3b, it seems that the business has been able to meet these obligations given the level of current assets of US$5.5b, with a current ratio of 1.64x. The current ratio is calculated by dividing current assets by current liabilities. For Food companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

SEHK:288 Historical Debt, July 18th 2019

Does 288 face the risk of succumbing to its debt-load?

288’s level of debt is appropriate relative to its total equity, at 37%. 288 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether 288 is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In 288's case, the ratio of 13.1x suggests that interest is comfortably covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like 288 are considered a risk-averse investment.

Next Steps:

288’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. I admit this is a fairly basic analysis for 288's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research WH Group to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 288’s future growth? Take a look at our free research report of analyst consensus for 288’s outlook.
  2. Valuation: What is 288 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 288 is currently mispriced by the market.
  3. 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 editorial-team@simplywallst.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.