While small-cap stocks, such as Columbus McKinnon Corporation (NASDAQ:CMCO) with its market cap of US$862m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I recommend you dig deeper yourself into CMCO here.
How does CMCO’s operating cash flow stack up against its debt?
CMCO’s debt levels have fallen from US$422m to US$367m over the last 12 months , which is made up of current and long term debt. With this debt payback, CMCO currently has US$59m remaining in cash and short-term investments for investing into the business. Additionally, CMCO has produced cash from operations of US$62m in the last twelve months, leading to an operating cash to total debt ratio of 17%, meaning that CMCO’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CMCO’s case, it is able to generate 0.17x cash from its debt capital.
Does CMCO’s liquid assets cover its short-term commitments?
With current liabilities at US$197m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.85x. Usually, for Machinery companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is CMCO’s debt level acceptable?
CMCO is a relatively highly levered company with a debt-to-equity of 86%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In CMCO’s case, the ratio of 4.98x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving CMCO ample headroom to grow its debt facilities.
At its current level of cash flow coverage, CMCO has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how CMCO has been performing in the past. You should continue to research Columbus McKinnon to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CMCO’s future growth? Take a look at our free research report of analyst consensus for CMCO’s outlook.
- Valuation: What is CMCO 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 CMCO 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 email@example.com.