What You Should Know About Cambria Automobiles plc's (LON:CAMB) Financial Strength
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
While small-cap stocks, such as Cambria Automobiles plc (LON:CAMB) with its market cap of UK£60m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, these checks don't give you a full picture, so I’d encourage you to dig deeper yourself into CAMB here.
Does CAMB Produce Much Cash Relative To Its Debt?
CAMB has built up its total debt levels in the last twelve months, from UK£43m to UK£63m , which includes long-term debt. With this growth in debt, CAMB's cash and short-term investments stands at UK£16m , ready to be used for running the business. On top of this, CAMB has produced UK£13m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 21%, indicating that CAMB’s debt is appropriately covered by operating cash.
Does CAMB’s liquid assets cover its short-term commitments?
With current liabilities at UK£130m, it seems that the business may not have an easy time meeting these commitments with a current assets level of UK£120m, leading to a current ratio of 0.93x. The current ratio is calculated by dividing current assets by current liabilities.
Can CAMB service its debt comfortably?
Since total debt levels exceed equity, CAMB is a highly leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. We can test if CAMB’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For CAMB, the ratio of 10.56x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
CAMB’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. But, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for CAMB's financial health. Other important fundamentals need to be considered alongside. You should continue to research Cambria Automobiles to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CAMB’s future growth? Take a look at our free research report of analyst consensus for CAMB’s outlook.
Valuation: What is CAMB 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 CAMB 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
