Yahoo Finance Is NagaCorp Ltd (HKG:3918) A Financially Strong Company?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as NagaCorp Ltd (HKG:3918), with a market capitalization of HK$35.60b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. 3918’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 3918 here.
View our latest analysis for NagaCorp
Does 3918 produce enough cash relative to debt?
3918 has increased its debt level by about US$290.6m over the last 12 months made up of current and long term debt. With this ramp up in debt, the current cash and short-term investment levels stands at US$389.8m for investing into the business. Moreover, 3918 has generated cash from operations of US$366.2m in the last twelve months, resulting in an operating cash to total debt ratio of 126%, signalling that 3918’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 3918’s case, it is able to generate 1.26x cash from its debt capital.
Can 3918 meet its short-term obligations with the cash in hand?
Looking at 3918’s most recent US$108.7m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$487.1m, with a current ratio of 4.48x. However, anything above 3x may be considered excessive by some investors. They might argue 3918 is leaving too much capital in low-earning investments.
Is 3918’s debt level acceptable?
With debt at 20.2% of equity, 3918 may be thought of as appropriately levered. 3918 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if 3918’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For 3918, the ratio of 105x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as 3918’s high interest coverage is seen as responsible and safe practice.
Next Steps:
3918’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure 3918 has company-specific issues impacting its capital structure decisions. I recommend you continue to research NagaCorp to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 3918’s future growth? Take a look at our free research report of analyst consensus for 3918’s outlook.
Valuation: What is 3918 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 3918 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
