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Chow Tai Fook Jewellery Group Limited (SEHK:1929), a large-cap worth HK$83.30B, comes to mind for investors seeking a strong and reliable stock investment. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. But, its financial health remains the key to continued success. Let’s take a look at Chow Tai Fook Jewellery Group’s leverage and assess its financial strength to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 1929 here. View our latest analysis for Chow Tai Fook Jewellery Group
How much cash does 1929 generate through its operations?
1929’s debt levels have fallen from HK$14.43B to HK$10.01B over the last 12 months , which comprises of short- and long-term debt. With this debt payback, 1929 currently has HK$8.62B remaining in cash and short-term investments , ready to deploy into the business. On top of this, 1929 has generated HK$6.25B in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 62.46%, signalling that 1929’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 1929’s case, it is able to generate 0.62x cash from its debt capital.
Can 1929 meet its short-term obligations with the cash in hand?
At the current liabilities level of HK$15.79B liabilities, it seems that the business has been able to meet these commitments with a current assets level of HK$42.27B, leading to a 2.68x current account ratio. Usually, for Specialty Retail companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is 1929’s debt level acceptable?
1929 is a relatively highly levered company with a debt-to-equity of 44.91%. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. By measuring how many times 1929’s earnings can cover interest payments, we can evaluate whether its level of debt is sustainable or not. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In 1929’s case, the ratio of 40.57x suggests that interest is comfortably covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like 1929 are considered a risk-averse investment.