Stocks with market capitalization between $2B and $10B, such as HengTen Networks Group Limited (HKG:136) with a size of HK$21b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. This article will examine 136’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 HengTen Networks Group’s financial health, so you should conduct further analysis into 136 here.
How does 136’s operating cash flow stack up against its debt?
136 has sustained its debt level by about CN¥52m over the last 12 months – this includes both the current and long-term debt. At this constant level of debt, 136 currently has CN¥1.2b remaining in cash and short-term investments for investing into the business. On top of this, 136 has produced CN¥323m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 627%, signalling that 136’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 136’s case, it is able to generate 6.27x cash from its debt capital.
Can 136 pay its short-term liabilities?
Looking at 136’s most recent CN¥364m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of CN¥1.4b, with a current ratio of 3.73x. However, a ratio greater than 3x may be considered as quite high, and some might argue 136 could be holding too much capital in a low-return investment environment.
Can 136 service its debt comfortably?
With debt at 5.2% of equity, 136 may be thought of as having low leverage. This range is considered safe as 136 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether 136 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 136’s, case, the ratio of 177x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as 136’s high interest coverage is seen as responsible and safe practice.
136’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure 136 has company-specific issues impacting its capital structure decisions. I suggest you continue to research HengTen Networks Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 136’s future growth? Take a look at our free research report of analyst consensus for 136’s outlook.
- Valuation: What is 136 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 136 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.
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