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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Jiangsu Expressway Company Limited (HKG:177) with a market-capitalization of HK$51.1b, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at 177’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 177 here.
See 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 growth in debt, the current cash and short-term investment levels stands at CN¥984m for investing into the business. Additionally, 177 has generated CN¥5.3b in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 39%, meaning that 177’s operating cash is sufficient to cover its 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, the company 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.
Is 177’s debt level acceptable?
With a debt-to-equity ratio of 49%, 177 can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses.
Next Steps:
Although 177’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. This is only a rough assessment of financial health, and I’m sure 177 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Jiangsu Expressway to get a better picture of the stock by looking at:
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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.
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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.
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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.