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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as A-Living Services Co., Ltd. (HKG:3319), with a market capitalization of HK$17b, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine 3319’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 3319 here.
See our latest analysis for A-Living Services
Does 3319 Produce Much Cash Relative To Its Debt?
Over the past year, 3319 has reduced its debt from CN¥60m to CN¥41m , which is mainly comprised of near term debt. With this debt payback, 3319 currently has CN¥4.8b remaining in cash and short-term investments , ready to be used for running the business. Moreover, 3319 has generated CN¥883m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 2167%, signalling that 3319’s debt is appropriately covered by operating cash.
Can 3319 pay its short-term liabilities?
At the current liabilities level of CN¥1.7b, it appears that the company has been able to meet these commitments with a current assets level of CN¥6.0b, leading to a 3.47x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Is 3319’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. The good news for investors is that A-Living Services has virtually no debt. It has been operating its business with miniscule debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with 3319, and the company has plenty of headroom and ability to raise debt should it need to in the future.
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3319’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for 3319's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research A-Living Services to get a more holistic view of the stock by looking at: