Investors pursuing a solid, dependable stock investment can often be led to Hengan International Group Company Limited (HKG:1044), a large-cap worth HK$83b. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. 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. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into 1044 here.

View our latest analysis for Hengan International Group

1044’s Debt (And Cash Flows)

1044 has built up its total debt levels in the last twelve months, from CN¥19b to CN¥24b – this includes long-term debt. With this increase in debt, 1044 currently has CN¥22b remaining in cash and short-term investments , ready to be used for running the business. Additionally, 1044 has generated CN¥4.0b in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 16%, signalling that 1044’s operating cash is less than its debt.

Does 1044’s liquid assets cover its short-term commitments?

With current liabilities at CN¥24b, it appears that the company has been able to meet these commitments with a current assets level of CN¥31b, leading to a 1.26x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Personal Products companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Can 1044 service its debt comfortably?

Since equity is smaller than total debt levels, Hengan International Group is considered to have high leverage. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital.

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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure 1044 has company-specific issues impacting its capital structure decisions. You should continue to research Hengan International Group to get a more holistic view of the stock by looking at:

1. 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.

2. 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.

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.