Concord Medical Services Holdings Limited (NYSE:CCM) is a small-cap stock with a market capitalization of US$124m. 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. Why is it important? Healthcare companies, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes crucial. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into CCM here.
How does CCM’s operating cash flow stack up against its debt?
CCM has shrunken its total debt levels in the last twelve months, from CN¥2.1b to CN¥1.1b , which is made up of current and long term debt. With this reduction in debt, CCM’s cash and short-term investments stands at CN¥460m , 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 CCM’s operating efficiency ratios such as ROA here.
Does CCM’s liquid assets cover its short-term commitments?
Looking at CCM’s most recent CN¥1.0b liabilities, it seems that the business has been able to meet these commitments with a current assets level of CN¥1.1b, leading to a 1.1x current account ratio. Generally, for Healthcare companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can CCM service its debt comfortably?
CCM is a relatively highly levered company with a debt-to-equity of 42%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since CCM is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
CCM’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, 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 CCM has been performing in the past. I recommend you continue to research Concord Medical Services Holdings to get a better picture 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 past 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.
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