Mid-caps stocks, like Kingboard Chemical Holdings Limited (SEHK:148) with a market capitalization of HK$45.22B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Mid-caps are found to be more volatile than the large-caps but safer than small-caps, largely due to their weaker balance sheet. I will take you through a few basic checks to assess the financial health of companies with no debt. Check out our latest analysis for Kingboard Chemical Holdings
Is 148’s level of debt at an acceptable level?
While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. 148’s debt-to-equity ratio stands at 34.09%, which means its risk of facing a debt-overhang is very low.
Can 148 meet its short-term obligations with the cash in hand?
Another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. In order to measure liquidity, we must compare 148’s current assets with its upcoming liabilities. Our analysis shows that 148 does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Next Steps:
Are you a shareholder? 148 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Given that 148’s financial situation could change, You should continue researching market expectations for 148’s future growth on our free analysis platform.
Are you a potential investor? Although investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. After all, debt financing is an important source of funding for companies seeking to grow through new projects and investments. 148’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
To help readers see pass 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.