What You Must Know About Vtech Holdings Limited’s (HKG:303) Financial Health – Simply Wall St


Mid-caps stocks, like Vtech Holdings Limited (HKG:303) with a market capitalization of HK$19b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks.
However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks.
Let’s take a look at 303’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 303 here.



View our latest analysis for Vtech Holdings

Is 303’s debt level acceptable?

What is considered a high debt-to-equity ratio differs depending on the industry, because some industries tend to utilize more debt financing than others.
As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%.
The good news for investors is that Vtech Holdings has no debt.
It has been operating its business with zero debt and utilising only its equity capital.
Investors’ risk associated with debt is virtually non-existent with 303, and the company has plenty of headroom and ability to raise debt should it need to in the future.


SEHK:303 Historical Debt, April 13th 2019

SEHK:303 Historical Debt, April 13th 2019

Can 303 pay its short-term liabilities?

Since Vtech Holdings doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations.
However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders.
At the current liabilities level of US$691m,
the company
has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.58x.
The current ratio is calculated by dividing current assets by current liabilities.
For Communications companies, this ratio is within a sensible range
since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Next Steps:

303 has
zero-debt
as well as
ample cash to cover its
short-term
commitments.
Its safe operations reduces risk for the company and
shareholders,
however,
some degree of
debt
could
also
ramp up
earnings growth and operational efficiency.
Keep in mind I haven’t considered other factors such as how 303 has performed in the past.
I suggest you
continue to research Vtech Holdings to get a
better picture
of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 303’s future growth? Take a look at our free research report of analyst consensus for 303’s outlook.
  2. Valuation: What is 303 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 303 is currently mispriced by the market.
  3. 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.


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