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JD.com, Inc. (NASDAQ:JD), a large-cap worth US$44b, 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 companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Using the most recent data for JD, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
Does JD Produce Much Cash Relative To Its Debt?
JD has shrunk its total debt levels in the last twelve months, from CN¥24b to CN¥14b – this includes long-term debt. With this reduction in debt, JD's cash and short-term investments stands at CN¥36b to keep the business going. Moreover, JD has generated cash from operations of CN¥21b during the same period of time, resulting in an operating cash to total debt ratio of 145%, indicating that JD’s operating cash is sufficient to cover its debt.
Can JD pay its short-term liabilities?
At the current liabilities level of CN¥121b, the company may not have an easy time meeting these commitments with a current assets level of CN¥105b, leading to a current ratio of 0.87x. The current ratio is the number you get when you divide current assets by current liabilities.
Can JD service its debt comfortably?
JD’s level of debt is appropriate relative to its total equity, at 19%. JD is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for JD, and the company also has the ability and headroom to increase debt if needed going forward.
JD’s high cash coverage and conservative debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But it is still important for shareholders to understand why the company isn't increasing its cheaper cost of capital to fund future growth, especially when liquidity may also be an issue. This is only a rough assessment of financial health, and I'm sure JD has company-specific issues impacting its capital structure decisions. I recommend you continue to research JD.com to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for JD’s future growth? Take a look at our free research report of analyst consensus for JD’s outlook.
- Valuation: What is JD 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 JD 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.