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What does CARBO Ceramics Inc.’s (NYSE:CRR) Balance Sheet Tell Us About Its Future?

Michael Crabtree

Investors are always looking for growth in small-cap stocks like CARBO Ceramics Inc. (NYSE:CRR), with a market cap of US$113m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Energy Services industry, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes vital. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into CRR here.

Does CRR produce enough cash relative to debt?

CRR has sustained its debt level by about US$88m over the last 12 months – this includes long-term debt. At this current level of debt, CRR’s cash and short-term investments stands at US$49m for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of CRR’s operating efficiency ratios such as ROA here.

Can CRR meet its short-term obligations with the cash in hand?

With current liabilities at US$62m, the company has been able to meet these commitments with a current assets level of US$190m, leading to a 3.07x current account ratio. However, many consider a ratio above 3x to be high.

NYSE:CRR Historical Debt January 17th 19

Can CRR service its debt comfortably?

CRR’s level of debt is appropriate relative to its total equity, at 25%. This range is considered safe as CRR is not taking on too much debt obligation, which may be constraining for future growth. CRR’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.

Next Steps:

CRR’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure CRR has company-specific issues impacting its capital structure decisions. I suggest you continue to research CARBO Ceramics to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for CRR’s future growth? Take a look at our free research report of analyst consensus for CRR’s outlook.
  2. Valuation: What is CRR 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 CRR is currently mispriced by the market.
  3. 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 editorial-team@simplywallst.com.