What You Must Know About China Resources Gas Group Limited's (HKG:1193) Financial Health
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China Resources Gas Group Limited (HKG:1193), a large-cap worth HK$85b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Today I will analyse the latest financial data for 1193 to determine is solvency and liquidity and whether the stock is a sound investment.
See our latest analysis for China Resources Gas Group
Does 1193 Produce Much Cash Relative To Its Debt?
Over the past year, 1193 has ramped up its debt from HK$12b to HK$13b , which accounts for long term debt. With this growth in debt, the current cash and short-term investment levels stands at HK$12b to keep the business going. Moreover, 1193 has produced cash from operations of HK$8.3b over the same time period, leading to an operating cash to total debt ratio of 66%, meaning that 1193’s debt is appropriately covered by operating cash.
Can 1193 pay its short-term liabilities?
With current liabilities at HK$34b, the company may not have an easy time meeting these commitments with a current assets level of HK$25b, leading to a current ratio of 0.73x. The current ratio is calculated by dividing current assets by current liabilities.
Does 1193 face the risk of succumbing to its debt-load?
With debt at 40% of equity, 1193 may be thought of as appropriately levered. This range is considered safe as 1193 is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether 1193 is able to meet its debt obligations by looking at the net interest coverage ratio. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For 1193, the ratio of 53.05x suggests that interest is amply covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as 1193 is a safe investment.
Next Steps:
1193’s debt level is appropriate for a company its size. Furthermore, it is able to generate sufficient cash flow coverage, meaning it is able to put its debt in good use. But, its lack of liquidity raises questions over current asset management practices for the large-cap. This is only a rough assessment of financial health, and I'm sure 1193 has company-specific issues impacting its capital structure decisions. I recommend you continue to research China Resources Gas Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 1193’s future growth? Take a look at our free research report of analyst consensus for 1193’s outlook.
Valuation: What is 1193 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 1193 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.
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.
