Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Zhejiang Expressway Co Ltd (HKG:576), with a market capitalization of CN¥28.45b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. 576’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 576 here.
How much cash does 576 generate through its operations?
576’s debt levels surged from CN¥6.09b to CN¥10.55b over the last 12 months – this includes both the current and long-term debt. With this increase in debt, 576 currently has CN¥7.43b remaining in cash and short-term investments for investing into the business. On top of this, 576 has generated CN¥1.79b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 16.99%, indicating that 576’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 576’s case, it is able to generate 0.17x cash from its debt capital.
Can 576 pay its short-term liabilities?
With current liabilities at CN¥34.61b, it appears that the company has been able to meet these obligations given the level of current assets of CN¥55.97b, with a current ratio of 1.62x. Generally, for Infrastructure 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 576 service its debt comfortably?
With a debt-to-equity ratio of 34.96%, 576’s debt level may be seen as prudent. 576 is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether 576 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 576’s, case, the ratio of 8.25x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as 576’s high interest coverage is seen as responsible and safe practice.
Although 576’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for 576’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Zhejiang Expressway to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 576’s future growth? Take a look at our free research report of analyst consensus for 576’s outlook.
- Valuation: What is 576 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 576 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.