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Mid-caps stocks, like Kerry Properties Limited (HKG:683) with a market capitalization of HK$48b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Let’s take a look at 683’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 683 here.
Check out our latest analysis for Kerry Properties
Does 683 produce enough cash relative to debt?
683’s debt levels have fallen from HK$43b to HK$32b over the last 12 months , which includes long-term debt. With this debt repayment, 683’s cash and short-term investments stands at HK$14b , ready to deploy into the business. Moreover, 683 has generated cash from operations of HK$12b in the last twelve months, leading to an operating cash to total debt ratio of 38%, meaning that 683’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 683’s case, it is able to generate 0.38x cash from its debt capital.
Can 683 meet its short-term obligations with the cash in hand?
At the current liabilities level of HK$21b, it appears that the company has been able to meet these commitments with a current assets level of HK$36b, leading to a 1.72x current account ratio. Generally, for Real Estate companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can 683 service its debt comfortably?
683’s level of debt is appropriate relative to its total equity, at 29%. 683 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether 683 is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In 683’s, case, the ratio of 6037x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving 683 ample headroom to grow its debt facilities.