While small-cap stocks, such as CCA Industries Inc (NYSEMKT:CAW) with its market cap of US$21m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since CAW is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into CAW here.
Does CAW produce enough cash relative to debt?
Over the past year, CAW has reduced its debt from US$4m to US$2m , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$91k for investing into the business. On top of this, CAW has generated cash from operations of US$659k over the same time period, resulting in an operating cash to total debt ratio of 39%, signalling that CAW’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires positive earnings. In CAW’s case, it is able to generate 0.39x cash from its debt capital.
Can CAW pay its short-term liabilities?
Looking at CAW’s most recent US$5m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$6m, with a current ratio of 1.37x. Usually, for Personal Products companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can CAW service its debt comfortably?
With debt at 21% of equity, CAW may be thought of as appropriately levered. CAW is not taking on too much debt commitment, which may be constraining for future growth. CAW’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
CAW has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how CAW has been performing in the past. I recommend you continue to research CCA Industries to get a better picture of the stock by looking at:
- Valuation: What is CAW 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 CAW is currently mispriced by the market.
- Historical Performance: What has CAW’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.
- 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 email@example.com.