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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Brilliance China Automotive Holdings Limited (HKG:1114), with a market cap of HK$41b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. 1114’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 1114 here.
Does 1114 Produce Much Cash Relative To Its Debt?
1114 has sustained its debt level by about CN¥5.1b over the last 12 months – this includes long-term debt. At this current level of debt, the current cash and short-term investment levels stands at CN¥2.9b to keep the business going. 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 examine some of 1114’s operating efficiency ratios such as ROA here.
Can 1114 meet its short-term obligations with the cash in hand?
At the current liabilities level of CN¥10b, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.92x. The current ratio is the number you get when you divide current assets by current liabilities.
Is 1114’s debt level acceptable?
With a debt-to-equity ratio of 16%, 1114’s debt level may be seen as prudent. 1114 is not taking on too much debt commitment, which may be constraining for future growth.
1114’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. Furthermore, its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven’t considered other factors such as how 1114 has been performing in the past. I suggest you continue to research Brilliance China Automotive Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 1114’s future growth? Take a look at our free research report of analyst consensus for 1114’s outlook.
- Historical Performance: What has 1114’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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 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.