What Investors Should Know About Cartesian Inc’s (CRTN) Financial Strength
While small-cap stocks, such as Cartesian Inc (NASDAQ:CRTN) with its market cap of USD $2.52M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. There are always disruptions which destabilize an existing industry, in which most small-cap companies are the first casualties. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know. Check out our latest analysis for Cartesian
How does CRTN’s operating cash flow stack up against its debt?
There are many headwinds that come unannounced, such as natural disasters and political turmoil, which can challenge a small business and its ability to adapt and recover. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. Can CRTN pay off what it owes to its debtholder by using only cash from its operational activities? Last year, CRTN’s operating cash flow was -0.51x its current debt. This means what CRTN can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at CRTN’s operations at this point in time.
Does CRTN’s liquid assets cover its short-term commitments?
What about its other commitments such as payments to suppliers and salaries to its employees? During times of unfavourable events, CRTN could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We test for CRTN’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that CRTN is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Can CRTN service its debt comfortably?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. In the case of CRTN, the debt-to-equity ratio is over 100%, which means that it is a highly leveraged company. This is not a problem if the company has consistently grown its profits. But during a business downturn, as liquidity may dry up, making it hard to operate.
Next Steps:
Are you a shareholder? At its current level of cash flow coverage, CRTN has room for improvement to better cushion for events which may require debt repayment. Though, its high liquidity means the company should continue to operate smoothly in the case of adverse events. Given that CRTN’s financial situation may change. I suggest researching market expectations for CRTN’s future growth on our free analysis platform.
Are you a potential investor? With a high level of debt on its balance sheet, CRTN could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for CRTN to increase its operational efficiency. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I encourage you to continue your research by taking a look at CRTN’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.
