While small-cap stocks, such as Calumet Specialty Products Partners LP. (NASDAQ:CLMT) with its market cap of US$603.33M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Oil and Gas industry, in particular ones that run negative earnings, are more likely to be higher risk. Assessing first and foremost the financial health is vital. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I suggest you dig deeper yourself into CLMT here.
Does CLMT generate enough cash through operations?
CLMT has sustained its debt level by about US$2.10B over the last 12 months comprising of short- and long-term debt. At this constant level of debt, CLMT’s cash and short-term investments stands at US$163.80M , ready to deploy 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 CLMT’s operating efficiency ratios such as ROA here.
Does CLMT’s liquid assets cover its short-term commitments?
At the current liabilities level of US$912.50M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$1.20B, with a current ratio of 1.31x. Generally, for Oil and Gas companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can CLMT service its debt comfortably?
CLMT is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since CLMT is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
CLMT’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how CLMT has been performing in the past. You should continue to research Calumet Specialty Products Partners to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for CLMT’s future growth? Take a look at our free research report of analyst consensus for CLMT’s outlook.
- 2. Valuation: What is CLMT 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 CLMT 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 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.