Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as ASM Pacific Technology Limited (HKG:522), with a market capitalization of HK$38b, rarely draw their attention from the investing community. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at 522’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 522 here.
Does 522 Produce Much Cash Relative To Its Debt?
522’s debt levels surged from HK$2.2b to HK$3.5b over the last 12 months – this includes long-term debt. With this rise in debt, 522 currently has HK$2.2b remaining in cash and short-term investments , ready to be used for running the business. Additionally, 522 has generated cash from operations of HK$1.9b over the same time period, resulting in an operating cash to total debt ratio of 56%, indicating that 522’s current level of operating cash is high enough to cover debt.
Can 522 meet its short-term obligations with the cash in hand?
At the current liabilities level of HK$7.8b, it appears that the company has been able to meet these commitments with a current assets level of HK$15b, leading to a 1.95x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Semiconductor companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is 522’s debt level acceptable?
522’s level of debt is appropriate relative to its total equity, at 29%. 522 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if 522’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 522, the ratio of 22.22x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as 522’s high interest coverage is seen as responsible and safe practice.
522’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. I admit this is a fairly basic analysis for 522’s financial health. Other important fundamentals need to be considered alongside. You should continue to research ASM Pacific Technology to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 522’s future growth? Take a look at our free research report of analyst consensus for 522’s outlook.
- Valuation: What is 522 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 522 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.
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