While small-cap stocks, such as Crown Crafts, Inc. (NASDAQ:CRWS) with its market cap of US$60m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I suggest you dig deeper yourself into CRWS here.
How much cash does CRWS generate through its operations?
Over the past year, CRWS has borrowed debt capital of around US$4.4m – which includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$154k for investing into the business. On top of this, CRWS has generated US$2.9m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 66%, meaning that CRWS’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CRWS’s case, it is able to generate 0.66x cash from its debt capital.
Does CRWS’s liquid assets cover its short-term commitments?
With current liabilities at US$8.9m, the company has been able to meet these commitments with a current assets level of US$38m, leading to a 4.25x current account ratio. However, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Can CRWS service its debt comfortably?
With a debt-to-equity ratio of 11%, CRWS’s debt level may be seen as prudent. CRWS is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether CRWS is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In CRWS’s, case, the ratio of 27.05x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as CRWS’s high interest coverage is seen as responsible and safe practice.
CRWS has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for CRWS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Crown Crafts to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CRWS’s future growth? Take a look at our free research report of analyst consensus for CRWS’s outlook.
- Valuation: What is CRWS 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 CRWS 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 email@example.com.