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Stocks with market capitalization between $2B and $10B, such as 58.com Inc. (NYSE:WUBA) with a size of US$8.1b, 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 the two other categories of stocks. Today we will look at WUBA’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. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into WUBA here.
Does WUBA Produce Much Cash Relative To Its Debt?
Over the past year, WUBA has maintained its debt levels at around CN¥813m which accounts for long term debt. At this stable level of debt, WUBA currently has CN¥7.0b remaining in cash and short-term investments to keep the business going. On top of this, WUBA has produced cash from operations of CN¥3.8b over the same time period, leading to an operating cash to total debt ratio of 467%, indicating that WUBA’s operating cash is sufficient to cover its debt.
Does WUBA’s liquid assets cover its short-term commitments?
With current liabilities at CN¥7.3b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.31x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Interactive Media and Services companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can WUBA service its debt comfortably?
With a debt-to-equity ratio of 3.4%, WUBA's debt level is relatively low. This range is considered safe as WUBA is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
WUBA has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for WUBA's financial health. Other important fundamentals need to be considered alongside. You should continue to research 58.com to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WUBA’s future growth? Take a look at our free research report of analyst consensus for WUBA’s outlook.
- Valuation: What is WUBA 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 WUBA 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 email@example.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.