Yahoo Finance New World Development Company Limited (HKG:17): Time For A Financial Health Check
The size of New World Development Company Limited (HKG:17), a HK$105.11b large-cap, often attracts investors seeking a reliable investment in the stock market. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, its financial health remains the key to continued success. Today we will look at New World Development’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. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 17 here.
View our latest analysis for New World Development
How does 17’s operating cash flow stack up against its debt?
Over the past year, 17 has maintained its debt levels at around HK$147.23b comprising of short- and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at HK$65.43b , ready to deploy into the business. On top of this, 17 has generated cash from operations of HK$8.86b in the last twelve months, leading to an operating cash to total debt ratio of 6.0%, indicating that 17’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 17’s case, it is able to generate 0.06x cash from its debt capital.
Can 17 meet its short-term obligations with the cash in hand?
With current liabilities at HK$90.64b, the company has been able to meet these obligations given the level of current assets of HK$178.81b, with a current ratio of 1.97x. Usually, for Real Estate companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does 17 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 61.4%, 17 can be considered as an above-average leveraged company. This is not unusual for large-caps since debt tends to be less expensive than equity because interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. We can test if 17’s debt levels are sustainable by measuring interest payments against earnings of a company. Net interest should be covered by earnings before interest and tax (EBIT) by at least three times to be safe. In 17’s case, the ratio of 1356x suggests that interest is comfortably covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes 17 and other large-cap investments thought to be safe.
Next Steps:
At its current level of cash flow coverage, 17 has room for improvement to better cushion for events which may require debt repayment. 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 17’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research New World Development to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 17’s future growth? Take a look at our free research report of analyst consensus for 17’s outlook.
Valuation: What is 17 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 17 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.
