Yahoo Finance Is China Petroleum & Chemical Corporation’s (HKG:386) Liquidity Good Enough?
With a market capitalization of HK$789b, China Petroleum & Chemical Corporation (HKG:386) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public for trading. 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. Today I will analyse the latest financial data for 386 to determine is solvency and liquidity and whether the stock is a sound investment.
See our latest analysis for China Petroleum & Chemical
How does 386’s operating cash flow stack up against its debt?
386 has built up its total debt levels in the last twelve months, from CN¥184b to CN¥197b – this includes long-term debt. With this growth in debt, 386 currently has CN¥236b remaining in cash and short-term investments for investing into the business. On top of this, 386 has produced CN¥218b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 110%, signalling that 386’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 386’s case, it is able to generate 1.1x cash from its debt capital.
Can 386 meet its short-term obligations with the cash in hand?
At the current liabilities level of CN¥621b, it seems that the business may not have an easy time meeting these commitments with a current assets level of CN¥612b, leading to a current ratio of 0.99x.
Can 386 service its debt comfortably?
With a debt-to-equity ratio of 23%, 386’s debt level may be seen as prudent. This range is considered safe as 386 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
Next Steps:
386’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Though its lack of liquidity raises questions over current asset management practices for the large-cap. I admit this is a fairly basic analysis for 386’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research China Petroleum & Chemical to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 386’s future growth? Take a look at our free research report of analyst consensus for 386’s outlook.
Valuation: What is 386 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 386 is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
