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Anhui Conch Cement Company Limited (HKG:914), a large-cap worth HK$249b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Using the most recent data for 914, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
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Does 914 Produce Much Cash Relative To Its Debt?
Over the past year, 914 has reduced its debt from CN¥13b to CN¥11b – this includes long-term debt. With this debt repayment, 914's cash and short-term investments stands at CN¥41b to keep the business going. Moreover, 914 has produced CN¥38b in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 345%, signalling that 914’s operating cash is sufficient to cover its debt.
Can 914 meet its short-term obligations with the cash in hand?
Looking at 914’s CN¥22b in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.47x. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Can 914 service its debt comfortably?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. 914’s level of debt is low relative to its total equity, at 8.9%. This range is considered safe as 914 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
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914 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. Keep in mind I haven't considered other factors such as how 914 has been performing in the past. I suggest you continue to research Anhui Conch Cement to get a better picture of the stock by looking at: