Is Sino-Ocean Group Holding Limited's (HKG:3377) Balance Sheet A Threat To Its Future?
Stocks with market capitalization between $2B and $10B, such as Sino-Ocean Group Holding Limited (HKG:3377) with a size of HK$30b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine 3377’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. Don’t forget that this is a general and concentrated examination of Sino-Ocean Group Holding’s financial health, so you should conduct further analysis into 3377 here.
Check out our latest analysis for Sino-Ocean Group Holding
3377’s Debt (And Cash Flows)
Over the past year, 3377 has ramped up its debt from CN¥61b to CN¥89b – this includes long-term debt. With this rise in debt, 3377's cash and short-term investments stands at CN¥39b to keep the business going. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can examine some of 3377’s operating efficiency ratios such as ROA here.
Can 3377 pay its short-term liabilities?
With current liabilities at CN¥110b, it appears that the company has been able to meet these obligations given the level of current assets of CN¥181b, with a current ratio of 1.64x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Real Estate companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Is 3377’s debt level acceptable?
With total debt exceeding equity, 3377 is considered a highly levered company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible.
Next Steps:
Although 3377’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around 3377's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for 3377's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Sino-Ocean Group Holding to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for 3377’s future growth? Take a look at our free research report of analyst consensus for 3377’s outlook.
Valuation: What is 3377 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 3377 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.
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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.
