Mid-caps stocks, like China Merchants Port Holdings Company Limited (HKG:144) with a market capitalization of HK$54.52b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Let’s take a look at 144’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 144 here.
How much cash does 144 generate through its operations?
144’s debt levels surged from HK$22.43b to HK$28.56b over the last 12 months , which is made up of current and long term debt. With this growth in debt, 144’s cash and short-term investments stands at HK$9.25b for investing into the business. Additionally, 144 has generated HK$5.76b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 20.16%, signalling that 144’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 144’s case, it is able to generate 0.2x cash from its debt capital.
Does 144’s liquid assets cover its short-term commitments?
With current liabilities at HK$15.53b, the company is not able to meet these obligations given the level of current assets of HK$13.05b, with a current ratio of 0.84x below the prudent level of 3x.
Can 144 service its debt comfortably?
144’s level of debt is appropriate relative to its total equity, at 31.86%. This range is considered safe as 144 is not taking on too much debt obligation, which may be constraining for future growth. We can test if 144’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For 144, the ratio of 2.16x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
144’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. I admit this is a fairly basic analysis for 144’s financial health. Other important fundamentals need to be considered alongside. You should continue to research China Merchants Port Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 144’s future growth? Take a look at our free research report of analyst consensus for 144’s outlook.
- Valuation: What is 144 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 144 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.