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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Baozun Inc. (NASDAQ:BZUN) with a market-capitalization of US$2.7b, rarely draw their attention. 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. This article will examine BZUN’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 BZUN here.
BZUN’s Debt (And Cash Flows)
BZUN's debt levels surged from CN¥172m to CN¥505m over the last 12 months – this includes long-term debt. With this rise in debt, BZUN currently has CN¥514m remaining in cash and short-term investments , ready to be used for running the business. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of BZUN’s operating efficiency ratios such as ROA here.
Can BZUN meet its short-term obligations with the cash in hand?
Looking at BZUN’s CN¥1.7b in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.86x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Online Retail companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does BZUN face the risk of succumbing to its debt-load?
With debt at 23% of equity, BZUN may be thought of as appropriately levered. This range is considered safe as BZUN is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether BZUN is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BZUN's, case, the ratio of 70.58x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as BZUN’s high interest coverage is seen as responsible and safe practice.
BZUN’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven't considered other factors such as how BZUN has been performing in the past. You should continue to research Baozun to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BZUN’s future growth? Take a look at our free research report of analyst consensus for BZUN’s outlook.
- Valuation: What is BZUN 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 BZUN 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 firstname.lastname@example.org. 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.