Investors are always looking for growth in small-cap stocks like Millennium & Copthorne Hotels New Zealand Limited (NZSE:MCK), with a market cap of NZ$450.39M. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes crucial, 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, since I only look at basic financial figures, I suggest you dig deeper yourself into MCK here.

Does MCK generate an acceptable amount of cash through operations?

Over the past year, MCK has reduced its debt from NZ$71.80M to NZ$66.00M – this includes both the current and long-term debt. With this debt payback, MCK’s cash and short-term investments stands at NZ$123.09M for investing into the business. On top of this, MCK has produced cash from operations of NZ$52.92M during the same period of time, leading to an operating cash to total debt ratio of 80.18%, meaning that MCK’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In MCK’s case, it is able to generate 0.8x cash from its debt capital.

Can MCK pay its short-term liabilities?

With current liabilities at NZ$28.29M, it seems that the business has been able to meet these obligations given the level of current assets of NZ$176.56M, with a current ratio of 6.24x. Though, anything about 3x may be excessive, since MCK may be leaving too much capital in low-earning investments.

Can MCK service its debt comfortably?

MCK’s level of debt is low relative to its total equity, at 9.94%. This range is considered safe as MCK is not taking on too much debt obligation, which may be constraining for future growth.

Next Steps:

MCK has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how MCK has been performing in the past. I suggest you continue to research Millennium & Copthorne Hotels New Zealand 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.