What You Must Know About Carbonxt Group Limited’s (ASX:CG1) Financial Strength
Carbonxt Group Limited (ASX:CG1) is a small-cap stock with a market capitalization of AU$29m. 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? Since CG1 is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into CG1 here.
How does CG1’s operating cash flow stack up against its debt?
Over the past year, CG1 has reduced its debt from AU$2.5m to AU$2.3m , which includes long-term debt. With this debt repayment, CG1’s cash and short-term investments stands at AU$5.2m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of CG1’s operating efficiency ratios such as ROA here.
Can CG1 pay its short-term liabilities?
At the current liabilities level of AU$1.9m, it appears that the company has been able to meet these obligations given the level of current assets of AU$7.1m, with a current ratio of 3.7x. However, a ratio above 3x may be considered excessive by some investors.
Does CG1 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 52%, CG1 can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since CG1 is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
CG1’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. Since there is also no concerns around CG1’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure CG1 has company-specific issues impacting its capital structure decisions. You should continue to research Carbonxt Group to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for CG1’s future growth? Take a look at our free research report of analyst consensus for CG1’s outlook.
Valuation: What is CG1 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 CG1 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 editorial-team@simplywallst.com.
