U.S. Markets closed

Has Yihai International Holding Ltd. (HKG:1579) Got Enough Cash?

Simply Wall St

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Yihai International Holding Ltd. (HKG:1579), with a market capitalization of HK$39b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine 1579’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 1579 here.

See our latest analysis for Yihai International Holding

Does 1579 face the risk of succumbing to its debt-load?

A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. For Yihai International Holding, investors should not worry about its debt levels because the company has none! It has been operating its business with zero debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with 1579, and the company has plenty of headroom and ability to raise debt should it need to in the future.

SEHK:1579 Historical Debt, June 16th 2019

Can 1579 meet its short-term obligations with the cash in hand?

Since Yihai International Holding doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at CN¥422m, it appears that the company has been able to meet these commitments with a current assets level of CN¥1.9b, leading to a 4.45x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.

Next Steps:

1579 has no debt as well as ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and shareholders, but some degree of debt may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I'm sure 1579 has company-specific issues impacting its capital structure decisions. You should continue to research Yihai International Holding to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 1579’s future growth? Take a look at our free research report of analyst consensus for 1579’s outlook.
  2. Valuation: What is 1579 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 1579 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.