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China Resources Gas Group Limited (HKG:1193), a large-cap worth HK$85b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Using the most recent data for 1193, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
Check out our latest analysis for China Resources Gas Group
1193’s Debt (And Cash Flows)
1193 has built up its total debt levels in the last twelve months, from HK$12b to HK$13b , which accounts for long term debt. With this growth in debt, the current cash and short-term investment levels stands at HK$12b , ready to be used for running the business. Moreover, 1193 has generated cash from operations of HK$8.3b over the same time period, leading to an operating cash to total debt ratio of 66%, indicating that 1193’s current level of operating cash is high enough to cover debt.
Does 1193’s liquid assets cover its short-term commitments?
Looking at 1193’s HK$34b in current liabilities, the company may not be able to easily meet these obligations given the level of current assets of HK$25b, with a current ratio of 0.73x. The current ratio is calculated by dividing current assets by current liabilities.
Is 1193’s debt level acceptable?
With a debt-to-equity ratio of 40%, 1193's debt level may be seen as prudent. This range is considered safe as 1193 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether 1193 is able to meet its debt obligations by looking at the net interest coverage ratio. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. For 1193, the ratio of 53.05x suggests that interest is amply covered. Large-cap investments like 1193 are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
1193’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Though its lack of liquidity raises questions over current asset management practices for the large-cap. I admit this is a fairly basic analysis for 1193's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research China Resources Gas Group to get a more holistic view of the stock by looking at: