Is Jiangsu Expressway Company Limited's (HKG:177) Balance Sheet A Threat To Its Future?

Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Jiangsu Expressway Company Limited (HKG:177), with a market cap of HK$48.7b, are often out of the spotlight. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. 177’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 177 here.

Check out our latest analysis for Jiangsu Expressway

How does 177’s operating cash flow stack up against its debt?

177's debt levels surged from CN¥10.3b to CN¥13.8b over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, 177 currently has CN¥984m remaining in cash and short-term investments , ready to deploy into the business. Moreover, 177 has produced CN¥5.3b in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 39%, indicating that 177’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 177’s case, it is able to generate 0.39x cash from its debt capital.

Can 177 pay its short-term liabilities?

With current liabilities at CN¥8.5b, it seems that the business may not have an easy time meeting these commitments with a current assets level of CN¥5.5b, leading to a current ratio of 0.65x.

Can 177 service its debt comfortably?

With debt reaching 49% of equity, 177 may be thought of as relatively highly levered. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses.

Next Steps:

177’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. But, 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 177's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Jiangsu Expressway to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 177’s future growth? Take a look at our free research report of analyst consensus for 177’s outlook.
2. Valuation: What is 177 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 177 is currently mispriced by the market.
3. 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 editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.