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While small-cap stocks, such as Caleres, Inc. (NYSE:CAL) with its market cap of US$758m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that CAL is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. However, these checks don't give you a full picture, so I recommend you dig deeper yourself into CAL here.
CAL’s Debt (And Cash Flows)
CAL's debt levels surged from US$198m to US$1.3b over the last 12 months , which accounts for long term debt. With this growth in debt, CAL's cash and short-term investments stands at US$36m to keep the business going. Additionally, CAL has generated US$128m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 9.7%, indicating that CAL’s operating cash is less than its debt.
Does CAL’s liquid assets cover its short-term commitments?
At the current liabilities level of US$911m, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$887m, with a current ratio of 0.97x. The current ratio is calculated by dividing current assets by current liabilities.
Is CAL’s debt level acceptable?
With debt reaching 82% of equity, CAL may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. But since CAL is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Although CAL’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven't considered other factors such as how CAL has been performing in the past. I recommend you continue to research Caleres to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CAL’s future growth? Take a look at our free research report of analyst consensus for CAL’s outlook.
- Valuation: What is CAL 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 CAL is currently mispriced by the market.
- 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.