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Is CTI Industries Corporation’s (CTIB) Balance Sheet Strong Enough To Weather A Storm?

Andrew Carroll

Investors are always looking for growth in small-cap stocks like CTI Industries Corporation (NASDAQ:CTIB), with a market cap of USD $13.49M. However, an important fact which most ignore is: how financially healthy is the business? Household Durables businesses operating in the environment facing headwinds from current disruption, even ones that are profitable, tend to be high risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into CTIB here.

Does CTIB generate enough cash through operations?

CTIB has sustained its debt level by about $20M over the last 12 months made up of current and long term debt. At this current level of debt, the current cash and short-term investment levels stands at $1M , ready to deploy into the business. However, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of CTIB’s operating efficiency ratios such as ROA here.

NasdaqCM:CTIB Historical Debt Nov 22nd 17

Does CTIB’s liquid assets cover its short-term commitments?

At the current liabilities level of $24M liabilities, it seems that the business has been able to meet these commitments with a current assets level of $36M, leading to a 1.5x current account ratio. Generally, for household durables companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

Does CTIB face the risk of succumbing to its debt-load?

Since total debt levels have outpaced equities, CTIB is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether CTIB is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interets and tax (EBIT) at least three times its net interest payments is considered financially sound. In CTIB’s, case, the ratio of 1.23x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as CTIB’s low interest coverage already puts the company at higher risk of default.

Next Steps:

Are you a shareholder? Although CTIB’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. Since there is also no concerns around CTIB’s liquidity needs, this may be its optimal capital structure for the time being. In the future, its financial position may change. I recommend keeping abreast of market expectations for CTIB’s future growth on our free analysis platform.

Are you a potential investor? CTIB’s high debt level shouldn’t scare off investors just yet. Its operating cash flow seems adequate to meet obligations which means its debt is being put to good use. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. To gain more conviction in the stock, you need to also examine CTIB’s track record. As a following step, you should take a look at CTIB’s past performance analysis on our free platform to figure out CTIB’s financial health position.


To help readers see pass 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.