Advertisement
New Zealand markets closed
  • NZX 50

    12,105.29
    +94.63 (+0.79%)
     
  • NZD/USD

    0.5987
    +0.0011 (+0.19%)
     
  • NZD/EUR

    0.5538
    +0.0005 (+0.10%)
     
  • ALL ORDS

    8,153.70
    +80.10 (+0.99%)
     
  • ASX 200

    7,896.90
    +77.30 (+0.99%)
     
  • OIL

    83.11
    -0.06 (-0.07%)
     
  • GOLD

    2,254.80
    +16.40 (+0.73%)
     
  • NASDAQ

    18,254.69
    -26.15 (-0.14%)
     
  • FTSE

    7,952.62
    +20.64 (+0.26%)
     
  • Dow Jones

    39,807.37
    +47.29 (+0.12%)
     
  • DAX

    18,492.49
    +15.40 (+0.08%)
     
  • Hang Seng

    16,541.42
    +148.58 (+0.91%)
     
  • NIKKEI 225

    40,369.44
    +201.37 (+0.50%)
     
  • NZD/JPY

    90.4670
    +0.0740 (+0.08%)
     

What does Oceania Healthcare Limited’s (NZSE:OCA) Balance Sheet Tell Us About Its Future?

Investors are always looking for growth in small-cap stocks like Oceania Healthcare Limited (NZSE:OCA), with a market cap of NZ$641m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Healthcare industry, even ones that are profitable, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into OCA here.

How much cash does OCA generate through its operations?

Over the past year, OCA has ramped up its debt from NZ$96m to NZ$169m – this includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at NZ$18m , ready to deploy into the business. On top of this, OCA has produced NZ$82m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 49%, indicating that OCA’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In OCA’s case, it is able to generate 0.49x cash from its debt capital.

Does OCA’s liquid assets cover its short-term commitments?

Looking at OCA’s NZ$52m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of NZ$71m, with a current ratio of 1.35x. Usually, for Healthcare 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.

NZSE:OCA Historical Debt December 24th 18
NZSE:OCA Historical Debt December 24th 18

Can OCA service its debt comfortably?

OCA’s level of debt is appropriate relative to its total equity, at 31%. This range is considered safe as OCA is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if OCA’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For OCA, the ratio of 4.21x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as OCA’s high interest coverage is seen as responsible and safe practice.

Next Steps:

OCA’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, 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 OCA has been performing in the past. I recommend you continue to research Oceania Healthcare to get a more holistic view of the stock by looking at:

ADVERTISEMENT
  1. Future Outlook: What are well-informed industry analysts predicting for OCA’s future growth? Take a look at our free research report of analyst consensus for OCA’s outlook.

  2. Historical Performance: What has OCA’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.

  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.