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Investors are always looking for growth in small-cap stocks like Coffee Holding Co., Inc. (NASDAQ:JVA), with a market cap of US$21m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I recommend you dig deeper yourself into JVA here.
Does JVA produce enough cash relative to debt?
JVA’s debt level has been constant at around US$7.3m over the previous year made up of predominantly near term debt. At this constant level of debt, JVA’s cash and short-term investments stands at US$5.1m , ready to deploy into the business. Additionally, JVA has generated US$6.9m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 95%, indicating that JVA’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In JVA’s case, it is able to generate 0.95x cash from its debt capital.
Does JVA’s liquid assets cover its short-term commitments?
At the current liabilities level of US$11m, it appears that the company has been able to meet these obligations given the level of current assets of US$30m, with a current ratio of 2.83x. Generally, for Food companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can JVA service its debt comfortably?
With a debt-to-equity ratio of 28%, JVA’s debt level may be seen as prudent. This range is considered safe as JVA is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether JVA 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 JVA’s, case, the ratio of 6.65x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as JVA’s high interest coverage is seen as responsible and safe practice.
JVA has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how JVA has been performing in the past. You should continue to research Coffee Holding to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for JVA’s future growth? Take a look at our free research report of analyst consensus for JVA’s outlook.
Valuation: What is JVA 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 JVA 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 firstname.lastname@example.org.