Investors are always looking for growth in small-cap stocks like CropLogic Limited (ASX:CLI), with a market cap of AU$6.53M. However, an important fact which most ignore is: how financially healthy is the business? Given that CLI is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into CLI here.
Does CLI generate an acceptable amount of cash through operations?
the current cash and short-term investment levels stands at AU$79.83K , 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. 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.
Can CLI meet its short-term obligations with the cash in hand?
Looking at CLI’s most recent AU$1.25M liabilities, it seems that the business has not been able to meet these commitments with a current assets level of AU$132.57K, leading to a 0.11x current account ratio. which is under the appropriate industry ratio of 3x.
Does CLI face the risk of succumbing to its debt-load?With debt at 5.98% of equity, CLI may be thought of as having low leverage. CLI is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is extremely low for CLI, and the company also has the ability and headroom to increase debt if needed going forward.
CLI’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure CLI has company-specific issues impacting its capital structure decisions. I recommend you continue to research CropLogic to get a better picture of the stock by looking at:
- 1. 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.
- 2. 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.