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Investors pursuing a solid, dependable stock investment can often be led to Longfor Group Holdings Limited (HKG:960), a large-cap worth HK$172b. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. However, the key to their continued success lies in its financial health. I will provide an overview of Longfor Group Holdings’s financial liquidity and leverage to give you an idea of Longfor Group Holdings’s position to take advantage of potential acquisitions or comfortably endure future downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 960 here.

View our latest analysis for Longfor Group Holdings

Does 960 Produce Much Cash Relative To Its Debt?

960's debt levels surged from CN¥84b to CN¥127b over the last 12 months – this includes long-term debt. With this rise in debt, 960's cash and short-term investments stands at CN¥45b to keep the business going. On top of this, 960 has produced CN¥78b in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 61%, meaning that 960’s debt is appropriately covered by operating cash.

Can 960 meet its short-term obligations with the cash in hand?

With current liabilities at CN¥250b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.49x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Real Estate companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Does 960 face the risk of succumbing to its debt-load?

With debt reaching 91% of equity, 960 may be thought of as relatively highly levered. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing.

Next Steps:

960’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 960's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for 960's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Longfor Group Holdings to get a better picture of the large-cap by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 960’s future growth? Take a look at our free research report of analyst consensus for 960’s outlook.

2. Valuation: What is 960 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 960 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.