Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like HengTen Networks Group Limited (HKG:136), with a market cap of HK$20.52b, are often out of the spotlight. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. 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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 136 here. Check out our latest analysis for HengTen Networks Group
How does 136’s operating cash flow stack up against its debt?
136’s debt levels have fallen from HK$54.20m to HK$50.83m over the last 12 months , which comprises of short- and long-term debt. With this debt repayment, 136’s cash and short-term investments stands at HK$954.21m , ready to deploy into the business. Moreover, 136 has generated cash from operations of HK$114.60m during the same period of time, leading to an operating cash to total debt ratio of 225.44%, signalling that 136’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 136’s case, it is able to generate 2.25x cash from its debt capital.
Does 136’s liquid assets cover its short-term commitments?
Looking at 136’s most recent HK$270.70m liabilities, it seems that the business has been able to meet these commitments with a current assets level of HK$1.15b, leading to a 4.26x current account ratio. Though, a ratio greater than 3x may be considered as too high, as 136 could be holding too much capital in a low-return investment environment.
Can 136 service its debt comfortably?
With a debt-to-equity ratio of 5.77%, 136’s debt level is relatively low. This range is considered safe as 136 is not taking on too much debt obligation, which may be constraining for future growth. 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 23.9x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving 136 ample headroom to grow its debt facilities.
136’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for 136’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research HengTen Networks Group to get a better picture 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.