Yahoo Finance Does Hengan International Group Company Limited’s (HKG:1044) Debt Level Pose A Problem?
Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Hengan International Group Company Limited (SEHK:1044) a safer option. Big corporations are much sought after by risk-averse investors who find diversified revenue streams and strong capital returns attractive. However, the key to their continued success lies in its financial health. Today we will look at Hengan International Group’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 1044 here. View our latest analysis for Hengan International Group
Does 1044 produce enough cash relative to debt?
1044 has built up its total debt levels in the last twelve months, from CN¥15.92B to CN¥19.09B , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at CN¥18.61B for investing into the business. On top of this, 1044 has generated cash from operations of CN¥4.03B in the last twelve months, resulting in an operating cash to total debt ratio of 21.10%, meaning that 1044’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 1044’s case, it is able to generate 0.21x cash from its debt capital.
Can 1044 meet its short-term obligations with the cash in hand?
Looking at 1044’s most recent CN¥19.19B liabilities, it seems that the business has been able to meet these commitments with a current assets level of CN¥25.67B, leading to a 1.34x current account ratio. Generally, for Personal Products companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 1044 service its debt comfortably?
With total debt exceeding equities, Hengan International Group is considered a highly levered company. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Consequently, larger-cap organisations tend to enjoy lower cost of capital as a result of easily attained financing, providing an advantage over smaller companies.
Next Steps:
1044’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure 1044 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Hengan International Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 1044’s future growth? Take a look at our free research report of analyst consensus for 1044’s outlook.
Valuation: What is 1044 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 1044 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 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.
