While small-cap stocks, such as Cielo Waste Solutions Corp (CNSX:CMC) with its market cap of CA$26.64m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since CMC is loss-making right now, it’s essential 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 recommend you dig deeper yourself into CMC here.
How much cash does CMC generate through its operations?
Over the past year, CMC has ramped up its debt from CA$2.22m to CA$3.51m , which comprises of short- and long-term debt. With this increase in debt, CMC currently has CA$525.15k remaining in cash and short-term investments , 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 take a look at some of CMC’s operating efficiency ratios such as ROA here.
Does CMC’s liquid assets cover its short-term commitments?
At the current liabilities level of CA$1.14m liabilities, the company has not been able to meet these commitments with a current assets level of CA$746.19k, leading to a 0.66x current account ratio. which is under the appropriate industry ratio of 3x.
Is CMC’s debt level acceptable?With total debt exceeding equities, CMC is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since CMC is presently 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.
With a high level of debt on its balance sheet, CMC could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for CMC to increase its operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how CMC has been performing in the past. You should continue to research Cielo Waste Solutions to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CMC’s future growth? Take a look at our free research report of analyst consensus for CMC’s outlook.
- Historical Performance: What has CMC’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.