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Investors are always looking for growth in small-cap stocks like Celsius Holdings, Inc. (NASDAQ:CELH), with a market cap of US$257m. However, an important fact which most ignore is: how financially healthy is the business? Since CELH is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, this is not a comprehensive overview, so I suggest you dig deeper yourself into CELH here.
CELH’s Debt (And Cash Flows)
CELH's debt levels surged from US$3.5m to US$8.0m over the last 12 months , which includes long-term debt. With this rise in debt, CELH currently has US$7.7m remaining in cash and short-term investments to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. For this article’s sake, I won’t be looking at this today, but you can examine some of CELH’s operating efficiency ratios such as ROA here.
Can CELH meet its short-term obligations with the cash in hand?
Looking at CELH’s US$15m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.32x. The current ratio is the number you get when you divide current assets by current liabilities. For Beverage 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.
Does CELH face the risk of succumbing to its debt-load?
CELH is a relatively highly levered company with a debt-to-equity of 67%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since CELH 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.
CELH’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around CELH's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for CELH's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Celsius Holdings to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CELH’s future growth? Take a look at our free research report of analyst consensus for CELH’s outlook.
- Historical Performance: What has CELH'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.
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.