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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like China Communications Services Corporation Limited (HKG:552), with a market cap of HK$44b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine 552’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. Don’t forget that this is a general and concentrated examination of China Communications Services’s financial health, so you should conduct further analysis into 552 here.
Does 552 Produce Much Cash Relative To Its Debt?
Over the past year, 552 has ramped up its debt from CN¥327m to CN¥471m , which includes long-term debt. With this growth in debt, 552 currently has CN¥21b remaining in cash and short-term investments to keep the business going. Additionally, 552 has produced CN¥4.3b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 905%, indicating that 552’s operating cash is sufficient to cover its debt.
Does 552’s liquid assets cover its short-term commitments?
Looking at 552’s CN¥47b in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.47x. The current ratio is calculated by dividing current assets by current liabilities. For Telecom 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 552’s debt level acceptable?
With a debt-to-equity ratio of 1.4%, 552’s debt level is relatively low. 552 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
552 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how 552 has been performing in the past. You should continue to research China Communications Services to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 552’s future growth? Take a look at our free research report of analyst consensus for 552’s outlook.
- Historical Performance: What has 552’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.
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 email@example.com. 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.