While small-cap stocks, such as Cavco Industries Inc (NASDAQ:CVCO) with its market cap of US$1.9b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Consumer Durables industry facing headwinds from current disruption, even ones that are profitable, tend to be high risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into CVCO here.
Does CVCO produce enough cash relative to debt?
CVCO’s debt level has been constant at around US$59m over the previous year – this includes both the current and long-term debt. At this stable level of debt, CVCO currently has US$192m remaining in cash and short-term investments , ready to deploy into the business. Additionally, CVCO has generated cash from operations of US$55m during the same period of time, leading to an operating cash to total debt ratio of 93%, meaning that CVCO’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CVCO’s case, it is able to generate 0.93x cash from its debt capital.
Can CVCO pay its short-term liabilities?
Looking at CVCO’s most recent US$176m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.44x. For Consumer Durables companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can CVCO service its debt comfortably?
CVCO’s level of debt is appropriate relative to its total equity, at 12%. CVCO is not taking on too much debt commitment, which may be constraining for future growth.
CVCO’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 will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure CVCO has company-specific issues impacting its capital structure decisions. I suggest you continue to research Cavco Industries to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CVCO’s future growth? Take a look at our free research report of analyst consensus for CVCO’s outlook.
- Valuation: What is CVCO 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 CVCO 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.
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 firstname.lastname@example.org.