Investors are always looking for growth in small-cap stocks like China Properties Investment Holdings Limited (SEHK:736), with a market cap of HK$179.73M. However, an important fact which most ignore is: how financially healthy is the business? Since 736 is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into 736 here.

How does 736’s operating cash flow stack up against its debt?

736’s debt levels have fallen from HK$52.46M to HK$30.15M over the last 12 months , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at HK$289.93M , 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of 736’s operating efficiency ratios such as ROA here.

Can 736 pay its short-term liabilities?

At the current liabilities level of HK$31.17M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of HK$684.87M, with a current ratio of 21.97x. Though, anything about 3x may be excessive, since 736 may be leaving too much capital in low-earning investments.

Does 736 face the risk of succumbing to its debt-load?

With debt at 3.79% of equity, 736 may be thought of as having low leverage. This range is considered safe as 736 is not taking on too much debt obligation, which may be constraining for future growth. 736’s risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.

Next Steps:

736’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, 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 736’s financial health. Other important fundamentals need to be considered alongside. You should continue to research China Properties Investment Holdings to get a better picture of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.