Investors are always looking for growth in small-cap stocks like China Oceanwide Holdings Limited (SEHK:715), with a market cap of HK$8.23B. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into 715 here.

How does 715’s operating cash flow stack up against its debt?

715 has built up its total debt levels in the last twelve months, from HK$1.56B to HK$4.81B , which is made up of current and long term debt. With this rise in debt, 715 currently has HK$615.57M remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of 715’s operating efficiency ratios such as ROA here.

Does 715’s liquid assets cover its short-term commitments?

With current liabilities at HK$4.68B, it appears that the company has been able to meet these commitments with a current assets level of HK$10.85B, leading to a 2.32x current account ratio. For Real Estate companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.

Is 715’s debt level acceptable?

715 is a relatively highly levered company with a debt-to-equity of 55.10%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.

Next Steps:

At its current level of cash flow coverage, 715 has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how 715 has been performing in the past. I suggest you continue to research China Oceanwide Holdings to get a more holistic view of the stock by looking at:

• 1. Historical Performance: What has 715’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

• 2. 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 pass 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.