Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like China Machinery Engineering Corporation (HKG:1829), with a market cap of HK$15.80b, are often out of the spotlight. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Today we will look at 1829’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 1829 here.
See our latest analysis for China Machinery Engineering
Does 1829 produce enough cash relative to debt?
1829 has built up its total debt levels in the last twelve months, from CN¥985.9m to CN¥1.20b – this includes both the current and long-term debt. With this rise in debt, 1829’s cash and short-term investments stands at CN¥26.69b for investing into the business. Additionally, 1829 has produced cash from operations of CN¥1.13b during the same period of time, leading to an operating cash to total debt ratio of 94.9%, indicating that 1829’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 1829’s case, it is able to generate 0.95x cash from its debt capital.
Does 1829’s liquid assets cover its short-term commitments?
With current liabilities at CN¥41.83b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.15x. Usually, for Construction companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is 1829’s debt level acceptable?
With a debt-to-equity ratio of 7.8%, 1829’s debt level is relatively low. This range is considered safe as 1829 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
Next Steps:
1829 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how 1829 has been performing in the past. I suggest you continue to research China Machinery Engineering to get a better picture of the stock by looking at: