Is Cowell e Holdings Inc's (HKG:1415) Balance Sheet Strong Enough To Weather A Storm?

Investors are always looking for growth in small-cap stocks like Cowell e Holdings Inc (HKG:1415), with a market cap of US$1.31b. However, an important fact which most ignore is: how financially healthy is the business? Electronic companies, even ones that are profitable, are more likely to be higher risk. So, understanding the company's financial health becomes vital. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into 1415 here.

Does 1415 produce enough cash relative to debt?

Over the past year, 1415 has reduced its debt from US$89.25m to US$47.11m . With this debt payback, 1415 currently has US$115.35m remaining in cash and short-term investments , ready to deploy into the business. Moreover, 1415 has produced cash from operations of US$61.33m over the same time period, resulting in an operating cash to total debt ratio of 130.17%, meaning that 1415’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 1415’s case, it is able to generate 1.3x cash from its debt capital.

Can 1415 meet its short-term obligations with the cash in hand?

Looking at 1415’s most recent US$170.43m liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$367.26m, leading to a 2.15x current account ratio. For Electronic companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Can 1415 service its debt comfortably?

With debt at 14.13% of equity, 1415 may be thought of as appropriately levered. This range is considered safe as 1415 is not taking on too much debt obligation, which may be constraining for future growth.

Next Steps:

1415’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, 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 1415 has been performing in the past. I recommend you continue to research Cowell e Holdings to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 1415’s future growth? Take a look at our free research report of analyst consensus for 1415’s outlook.
2. Valuation: What is 1415 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 1415 is currently mispriced by the market.
3. 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.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.