Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Times China Holdings Limited (SEHK:1233), with a market capitalization of HK$16.25B, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine 1233’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 1233 here. See our latest analysis for Times China Holdings
Does 1233 generate an acceptable amount of cash through operations?
1233 has built up its total debt levels in the last twelve months, from CN¥15.97B to CN¥20.80B – this includes both the current and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at CN¥8.92B , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of 1233’s operating efficiency ratios such as ROA here.
Can 1233 meet its short-term obligations with the cash in hand?
Looking at 1233’s most recent CN¥33.08B liabilities, the company has been able to meet these commitments with a current assets level of CN¥58.65B, leading to a 1.77x current account ratio. Usually, for Real Estate companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is 1233’s debt level acceptable?
Since total debt levels have outpaced equities, 1233 is a highly leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In 1233’s case, the ratio of 16.71x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving 1233 ample headroom to grow its debt facilities.