Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Sinopec Shanghai Petrochemical Company Limited (HKG:338) with a market-capitalization of HK$61b, 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 338’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. Don’t forget that this is a general and concentrated examination of Sinopec Shanghai Petrochemical's financial health, so you should conduct further analysis into 338 here.
Does 338 Produce Much Cash Relative To Its Debt?
338's debt levels have fallen from CN¥606m to CN¥497m over the last 12 months made up of predominantly near term debt. With this debt repayment, 338 currently has CN¥13b remaining in cash and short-term investments , ready to be used for running the business. Moreover, 338 has produced CN¥6.7b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 1346%, indicating that 338’s current level of operating cash is high enough to cover debt.
Can 338 pay its short-term liabilities?
Looking at 338’s CN¥14b in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of CN¥25b, leading to a 1.82x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Chemicals companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is 338’s debt level acceptable?
With debt at 1.6% of equity, 338 may be thought of as having low leverage. 338 is not taking on too much debt commitment, which may be constraining for future growth.
338 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for 338's financial health. Other important fundamentals need to be considered alongside. I suggest 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.
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If you spot an error that warrants correction, please contact the editor at email@example.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.