Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Red Star Macalline Group Corporation Ltd (HKG:1528), with a market cap of HK$43.41b, 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. Today we will look at 1528’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Don’t forget that this is a general and concentrated examination of Red Star Macalline Group’s financial health, so you should conduct further analysis into 1528 here. Check out our latest analysis for Red Star Macalline Group
How does 1528’s operating cash flow stack up against its debt?
1528 has built up its total debt levels in the last twelve months, from HK$22.67b to HK$0 – this includes both the current and long-term debt. With this rise in debt, 1528 currently has HK$10.63b remaining in cash and short-term investments , ready to deploy into the business. On top of this, 1528 has produced cash from operations of HK$6.52b over the same time period, leading to an operating cash to total debt ratio of 22.22%, meaning that 1528’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 1528’s case, it is able to generate 0.22x cash from its debt capital.
Does 1528’s liquid assets cover its short-term commitments?
Looking at 1528’s most recent HK$22.72b liabilities, the company has not been able to meet these commitments with a current assets level of HK$14.56b, leading to a 0.64x current account ratio. which is under the appropriate industry ratio of 3x.
Does 1528 face the risk of succumbing to its debt-load?
With debt reaching 62.28% of equity, 1528 may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether 1528 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 1528’s, case, the ratio of 9.04x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving 1528 ample headroom to grow its debt facilities.
1528’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the mid-cap. I admit this is a fairly basic analysis for 1528’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Red Star Macalline Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 1528’s future growth? Take a look at our free research report of analyst consensus for 1528’s outlook.
- Historical Performance: What has 1528’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.