Comstock Holding Companies Inc (NASDAQ:CHCI) is a small-cap stock with a market capitalization of USD $5.73M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. There are always disruptions which destabilize an existing industry, in which most small-cap companies are the first casualties. Here are few basic financial health checks to judge whether a company fits the bill or there is an additional risk which you should consider before taking the plunge. View our latest analysis for Comstock Holding Companies
How does CHCI’s operating cash flow stack up against its debt?
Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. These catastrophes does not mean the company can stop servicing its debt obligations. Fortunately, we can test the company’s capacity to pay back its debtholders without summoning any catastrophes by looking at how much cash it generates from its current operations. CHCI’s recent operating cash flow was -0.25 times its debt within the past year. This means what CHCI can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at CHCI’s operations at this point in time.
Can CHCI pay its short-term liabilities?
In addition to debtholders, a company must be able to pay its bills and salaries to keep the business running. In times of adverse events, CHCI may need to liquidate its short-term assets to pay these immediate obligations. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that CHCI does not have enough liquid assets on hand to meet its upcoming liabilities. Though this is a common practice, since cash is better utilized invested in the business or returned to shareholders, it does raise some concerns for investors should adverse events arise.
Does CHCI face the risk of succumbing to its debt-load?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. CHCI’s debt-to-equity ratio exceeds 100%, which indicates that the company is holding a high level of debt relative to its net worth. In the event of financial turmoil, the company may experience difficulty meeting interest and other debt obligations.
Are you a shareholder? CHCI’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. Going forward, CHCI’s financial situation may change. You should always be researching market expectations for CHCI’s future growth on our free analysis platform.
Are you a potential investor? CHCI’s high debt levels along with poor cash coverage as well as low liquidity coverage of short-term commitments may send potential investors running the other way. But, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of CHCI’s track record. As a following step, you should take a look at CHCI’s past performance analysis on our free platform to figure out CHCI’s financial health position.
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.