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With a market capitalization of CA$215b, Cresco Labs Inc. (CNSX:CL) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there's plenty of stocks available to the public for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Assessing the most recent data for CL, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
CL’s Debt (And Cash Flows)
CL's debt levels surged from US$328k to US$50m over the last 12 months – this includes long-term debt. With this growth in debt, CL currently has US$106m remaining in cash and short-term investments to keep the business going. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can examine some of CL’s operating efficiency ratios such as ROA here.
Can CL meet its short-term obligations with the cash in hand?
At the current liabilities level of US$37m, it seems that the business has been able to meet these commitments with a current assets level of US$183m, leading to a 4.95x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Having said that, many consider a ratio above 3x to be high.
Is CL’s debt level acceptable?
CL’s level of debt is appropriate relative to its total equity, at 18%. CL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. CL'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.
CL’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near-term obligations, which isn't a big surprise for a large-cap. Keep in mind I haven't considered other factors such as how CL has been performing in the past. You should continue to research Cresco Labs to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CL’s future growth? Take a look at our free research report of analyst consensus for CL’s outlook.
- Historical Performance: What has CL'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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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.