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Is CAI International Inc’s (NYSE:CAI) Balance Sheet A Threat To Its Future?

Walter Gay

Investors are always looking for growth in small-cap stocks like CAI International Inc (NYSE:CAI), with a market cap of US$447.60M. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I recommend you dig deeper yourself into CAI here.

Does CAI generate enough cash through operations?

CAI’s debt level has been constant at around US$1.48B over the previous year made up of current and long term debt. At this stable level of debt, CAI’s cash and short-term investments stands at US$46.13M for investing into the business. Additionally, CAI has produced US$129.26M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 8.76%, meaning that CAI’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CAI’s case, it is able to generate 0.088x cash from its debt capital.

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

At the current liabilities level of US$164.01M liabilities, it seems that the business is not able to meet these obligations given the level of current assets of US$135.15M, with a current ratio of 0.82x below the prudent level of 3x.

NYSE:CAI Historical Debt Feb 12th 18

Does CAI face the risk of succumbing to its debt-load?

With total debt exceeding equities, CAI is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether CAI is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In CAI’s, case, the ratio of 1.74x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.

Next Steps:

With a high level of debt on its balance sheet, CAI could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for CAI to increase its operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how CAI has been performing in the past. You should continue to research CAI International to get a better picture of the stock by looking at:

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.