While small-cap stocks, such as Core Molding Technologies, Inc. (NYSEMKT:CMT) with its market cap of US$61m, 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 CMT is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, this is not a comprehensive overview, so I’d encourage you to dig deeper yourself into CMT here.
CMT’s Debt (And Cash Flows)
CMT's debt levels surged from US$6.8m to US$58m over the last 12 months , which includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$1.9m , ready to be used for running the business. Moving on, operating cash flow was negative over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of CMT’s operating efficiency ratios such as ROA here.
Does CMT’s liquid assets cover its short-term commitments?
With current liabilities at US$40m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Chemicals companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is CMT’s debt level acceptable?
With a debt-to-equity ratio of 59%, CMT can be considered as an above-average leveraged company. 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 CMT is currently 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 CMT’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for CMT's financial health. Other important fundamentals need to be considered alongside. You should continue to research Core Molding Technologies to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CMT’s future growth? Take a look at our free research report of analyst consensus for CMT’s outlook.
- Historical Performance: What has CMT'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.
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