Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Yihai International Holding Ltd. (HKG:1579), with a market cap of HK$35b, often get neglected by retail investors. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Let’s take a look at 1579’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 1579 here.
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Can 1579 service its debt comfortably?
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! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. 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.
Does 1579’s liquid assets cover its short-term commitments?
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. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. With current liabilities at CN¥422m, it seems that the business 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 the number you get when you divide current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
1579 has no debt as well as ample cash to cover its short-term commitments. Its safe operations reduces risk for the company and shareholders, but some degree of debt could also ramp up earnings growth and operational efficiency. Keep in mind I haven't considered other factors such as how 1579 has performed in the past. I recommend you continue to research Yihai International Holding to get a better picture of the stock by looking at:
- 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.
- 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.
- 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 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.
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