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Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Techtronic Industries Company Limited (HKG:669). With a market valuation of US$87.48b, 669 is a safe haven in times of market uncertainty due to its strong balance sheet. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Assessing the most recent data for 669, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
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How does 669’s operating cash flow stack up against its debt?
Over the past year, 669 has reduced its debt from US$1.11b to US$987.01m , which comprises of short- and long-term debt. With this reduction in debt, 669 currently has US$1.04b remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of 669’s operating efficiency ratios such as ROA here.
Can 669 pay its short-term liabilities?
Looking at 669’s most recent US$2.27b liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.72x. Generally, for Consumer Durables companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 669 service its debt comfortably?
669’s level of debt is appropriate relative to its total equity, at 33.96%. 669 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if 669’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. For 669, the ratio of 56.61x suggests that interest is comfortably covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes 669 and other large-cap investments thought to be safe.
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669’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. I admit this is a fairly basic analysis for 669’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Techtronic Industries to get a more holistic view of the stock by looking at: