Is Euro Tech Holdings Company Limited’s (NASDAQ:CLWT) Balance Sheet A Threat To Its Future?
Euro Tech Holdings Company Limited (NASDAQ:CLWT) is a small-cap stock with a market capitalization of US$6.08M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Evaluating financial health as part of your investment thesis is crucial, 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. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into CLWT here.
Does CLWT generate an acceptable amount of cash through operations?
Over the past year, CLWT has borrowed debt capital of around US$720.00K , which is mainly comprised of near term debt. With this growth in debt, CLWT currently has US$3.75M remaining in cash and short-term investments , ready to deploy into the business. Moreover, CLWT has produced US$153.00K in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 21.25%, indicating that CLWT’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CLWT’s case, it is able to generate 0.21x cash from its debt capital.
Can CLWT meet its short-term obligations with the cash in hand?
Looking at CLWT’s most recent US$6.49M liabilities, the company has been able to meet these commitments with a current assets level of US$9.59M, leading to a 1.48x current account ratio. Generally, for Trade Distributors companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does CLWT face the risk of succumbing to its debt-load?
With debt at 2.21% of equity, CLWT may be thought of as having low leverage. This range is considered safe as CLWT is not taking on too much debt obligation, which may be constraining for future growth.
Next Steps:
CLWT’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 should an adverse event occur. This is only a rough assessment of financial health, and I’m sure CLWT has company-specific issues impacting its capital structure decisions. I suggest you continue to research Euro Tech Holdings to get a more holistic view of the stock by looking at:
1. Valuation: What is CLWT 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 CLWT is currently mispriced by the market.
2. Historical Performance: What has CLWT’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.
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 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.
