Mid-caps stocks, like WuXi Biologics (Cayman) Inc (SEHK:2269) with a market capitalization of HK$51.47B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups, primarily due to seasoned executives running a lean corporate structure. I will take you through a few basic checks to assess the financial health of companies with no debt. See our latest analysis for WuXi Biologics (Cayman)
Can 2269 service its debt comfortably?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. In the case of 2269, the debt-to-equity ratio is 32.49%, which means its debt level does not pose a threat to its operations right now. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings (EBIT) at least three times its interest payments is considered financially sound. 2269’s profits amply covers interest at 5.34 times, which is seen as relatively safe. Debtors may be willing to loan the company more money, giving 2269 ample headroom to grow its debt facilities.
Can 2269 meet its short-term obligations with the cash in hand?
Another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. If an adverse event occurs, the company may be forced to pay these immediate expenses with its liquid assets. To assess this, I compare 2269’s cash and other liquid assets against its upcoming debt. Our analysis shows that 2269 does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Next Steps:
Are you a shareholder? 2269 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Given that 2269’s financial position may be different in the future, I encourage researching market expectations for 2269’s future growth on our free analysis platform.
Are you a potential investor? Although understanding the serviceability of debt is important when evaluating which companies are viable investments, it shouldn’t be the deciding factor. After all, debt is often used to fund or accelerate new projects that are expected to improve a company’s growth trajectory in the longer term. 2269’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.