Investors are always looking for growth in small-cap stocks like CropLogic Limited (ASX:CLI), with a market cap of AU$3.95m. However, an important fact which most ignore is: how financially healthy is the business? Given that CLI is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into CLI here.
How much cash does CLI generate through its operations?
CLI’s debt levels have fallen from AU$1.09m to AU$601.60k over the last 12 months , which is made up of current and long term debt. With this debt repayment, CLI currently has AU$2.93m remaining in cash and short-term investments for investing 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 assess some of CLI’s operating efficiency ratios such as ROA here.
Does CLI’s liquid assets cover its short-term commitments?
At the current liabilities level of AU$1.27m liabilities, the company has been able to meet these obligations given the level of current assets of AU$3.05m, with a current ratio of 2.4x. Generally, for Professional Services 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.
Is CLI’s debt level acceptable?With a debt-to-equity ratio of 9.07%, CLI’s debt level is relatively low. CLI is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is virtually non-existent with CLI, and the company has plenty of headroom and ability to raise debt should it need to in the future.
CLI’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for CLI’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research CropLogic to get a better picture of the stock by looking at:
- Historical Performance: What has CLI’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.