There are a number of reasons that attract investors towards large-cap companies such as Alibaba Health Information Technology Limited (HKG:241), with a market cap of HK$117b. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, the key to their continued success lies in its financial health. Let’s take a look at Alibaba Health Information Technology’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 241 here.
Does 241 Produce Much Cash Relative To Its Debt?
241’s debt levels surged from CN¥200m to CN¥1.2b over the last 12 months . With this increase in debt, 241’s cash and short-term investments stands at CN¥2.3b to keep the business going. On top of this, 241 has generated CN¥349m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 28%, signalling that 241’s current level of operating cash is high enough to cover debt.
Can 241 meet its short-term obligations with the cash in hand?
With current liabilities at CN¥2.8b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.04x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Healthcare Services companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does 241 face the risk of succumbing to its debt-load?
241 is a relatively highly levered company with a debt-to-equity of 47%. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. Though, since 241 is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
241’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for 241’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Alibaba Health Information Technology to get a more holistic view of the large-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 241’s future growth? Take a look at our free research report of analyst consensus for 241’s outlook.
- Valuation: What is 241 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 241 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.
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