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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Xinyi Glass Holdings Limited (HKG:868), with a market cap of HK$33b, are often out of the spotlight. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Today we will look at 868’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. Don’t forget that this is a general and concentrated examination of Xinyi Glass Holdings’s financial health, so you should conduct further analysis into 868 here.

View our latest analysis for Xinyi Glass Holdings

Does 868 Produce Much Cash Relative To Its Debt?

Over the past year, 868 has ramped up its debt from HK$8.5b to HK$10.0b , which accounts for long term debt. With this growth in debt, 868's cash and short-term investments stands at HK$4.7b to keep the business going. Moreover, 868 has generated cash from operations of HK$4.6b during the same period of time, leading to an operating cash to total debt ratio of 47%, meaning that 868’s current level of operating cash is high enough to cover debt.

Does 868’s liquid assets cover its short-term commitments?

With current liabilities at HK$6.6b, it appears that the company has been able to meet these obligations given the level of current assets of HK$9.2b, with a current ratio of 1.39x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Auto Components companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.

Is 868’s debt level acceptable?

With a debt-to-equity ratio of 53%, 868 can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. 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 868's case, the ratio of 27.4x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

868’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around 868's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for 868's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Xinyi Glass Holdings to get a better picture of the mid-cap by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 868’s future growth? Take a look at our free research report of analyst consensus for 868’s outlook.

2. Valuation: What is 868 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 868 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.