What Investors Should Know About China Oceanwide Holdings Limited’s (HKG:715) Financial Strength
Investors are always looking for growth in small-cap stocks like China Oceanwide Holdings Limited (SEHK:715), with a market cap of HK$9.36B. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into 715 here.
Does 715 generate an acceptable amount of cash through operations?
715’s debt levels surged from HK$1,558.0M to HK$4,810.5M over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, 715 currently has HK$615.6M remaining in cash and short-term investments , ready to deploy into the business. Though its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 take a look at some of 715’s operating efficiency ratios such as ROA here.
Can 715 pay its short-term liabilities?
At the current liabilities level of HK$4,684.6M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.32x. Usually, for real estate companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is 715’s level of debt at an acceptable level?
With debt reaching 55.10% of equity, 715 may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.
Next Steps:
Are you a shareholder? 715’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. Given that its financial position may change. I suggest researching market expectations for 715’s future growth on our free analysis platform.
Are you a potential investor? Although near-term liquidity isn’t a concern, 715’s large debt ratio on top of low cash coverage of debt may scare some investors away intially. But, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of 715’s track record. I encourage you to continue your research by taking a look at 715’s past performance analysis on our free platform to conclude on 715’s financial health.
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.
