With a market capitalization of HK$226b, Anhui Conch Cement Company Limited (HKG:914) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Today I will analyse the latest financial data for 914 to determine is solvency and liquidity and whether the stock is a sound investment.
Does 914 Produce Much Cash Relative To Its Debt?
Over the past year, 914 has reduced its debt from CN¥17b to CN¥11b , which includes long-term debt. With this debt payback, 914’s cash and short-term investments stands at CN¥31b to keep the business going. Moreover, 914 has generated CN¥29b in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 275%, meaning that 914’s operating cash is sufficient to cover its debt.
Does 914’s liquid assets cover its short-term commitments?
With current liabilities at CN¥24b, it seems that the business has been able to meet these obligations given the level of current assets of CN¥62b, with a current ratio of 2.57x. The current ratio is the number you get when you divide current assets by current liabilities. For Basic Materials companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is 914’s debt level acceptable?
What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. With debt at 9.9% of equity, 914 may be thought of as having low leverage. 914 is not taking on too much debt commitment, which may be constraining for future growth.
914’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 an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure 914 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Anhui Conch Cement to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 914’s future growth? Take a look at our free research report of analyst consensus for 914’s outlook.
- Valuation: What is 914 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 914 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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