Yahoo Finance Is Shangri-La Asia Limited’s (HKG:69) Balance Sheet A Threat To Its Future?
Mid-caps stocks, like Shangri-La Asia Limited (HKG:69) with a market capitalization of HK$55.21b, 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 the two other categories of stocks. Let’s take a look at 69’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 69 here. Check out our latest analysis for Shangri-La Asia
How does 69’s operating cash flow stack up against its debt?
Over the past year, 69 has maintained its debt levels at around HK$5.21b – this includes both the current and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at HK$947.13m , ready to deploy into the business. Additionally, 69 has produced HK$473.66m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 9.09%, meaning that 69’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 69’s case, it is able to generate 0.091x cash from its debt capital.
Does 69’s liquid assets cover its short-term commitments?
At the current liabilities level of HK$1.35b liabilities, it seems that the business has been able to meet these commitments with a current assets level of HK$1.45b, leading to a 1.07x current account ratio. Usually, for Hospitality companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does 69 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 74.03%, 69 can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. 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 after interest and tax at least three times its net interest payments is considered financially sound. In 69’s case, the ratio of 1.7x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as 69’s low interest coverage already puts the company at higher risk of default.
Next Steps:
At its current level of cash flow coverage, 69 has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure 69 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Shangri-La Asia to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 69’s future growth? Take a look at our free research report of analyst consensus for 69’s outlook.
Valuation: What is 69 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 69 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.
