While small-cap stocks, such as Concord Medical Services Holdings Limited (NYSE:CCM) with its market cap of US$176.88M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Healthcare companies, in particular ones that run negative earnings, are more likely to be higher risk. Assessing first and foremost the financial health is essential. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into CCM here.
Does CCM generate an acceptable amount of cash through operations?
CCM’s debt levels surged from CN¥1.60B to CN¥1.72B over the last 12 months , which is made up of current and long term debt. With this growth in debt, CCM currently has CN¥189.91M remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of CCM’s operating efficiency ratios such as ROA here.
Can CCM pay its short-term liabilities?
With current liabilities at CN¥951.06M, it seems that the business has been able to meet these obligations given the level of current assets of CN¥1.19B, with a current ratio of 1.26x. Usually, for Healthcare companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does CCM face the risk of succumbing to its debt-load?
With total debt exceeding equities, CCM is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since CCM is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
At its current level of cash flow coverage, CCM 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 CCM has been performing in the past. I suggest you continue to research Concord Medical Services Holdings to get a more holistic view of the stock by looking at:
- Historical Performance: What has CCM’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.
- 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.