Is Bosideng International Holdings Limited (HKG:3998) As Strong As Its Balance Sheet Indicates?

Simply Wall St

Stocks with market capitalization between $2B and $10B, such as Bosideng International Holdings Limited (HKG:3998) with a size of HK$21b, do not attract as much attention from the investing community as do the small-caps and large-caps. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine 3998’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending 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 3998 here.

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See our latest analysis for Bosideng International Holdings

Does 3998 Produce Much Cash Relative To Its Debt?

3998 has built up its total debt levels in the last twelve months, from CN¥2.1b to CN¥2.4b . With this rise in debt, the current cash and short-term investment levels stands at CN¥4.3b , ready to be used for running the business. Moreover, 3998 has generated cash from operations of CN¥855m over the same time period, resulting in an operating cash to total debt ratio of 36%, signalling that 3998’s current level of operating cash is high enough to cover debt.

Can 3998 pay its short-term liabilities?

Looking at 3998’s CN¥5.0b in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of CN¥11b, with a current ratio of 2.19x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Luxury companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.

SEHK:3998 Historical Debt, May 23rd 2019

Can 3998 service its debt comfortably?

With a debt-to-equity ratio of 25%, 3998's debt level may be seen as prudent. This range is considered safe as 3998 is not taking on too much debt obligation, which may be constraining for future growth.

Next Steps:

3998 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for 3998's financial health. Other important fundamentals need to be considered alongside. You should continue to research Bosideng International Holdings to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 3998’s future growth? Take a look at our free research report of analyst consensus for 3998’s outlook.
  2. Valuation: What is 3998 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 3998 is currently mispriced by the market.
  3. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.