Investors are always looking for growth in small-cap stocks like CEMATRIX Corporation (CVE:CVX), with a market cap of CA$9.44m. However, an important fact which most ignore is: how financially healthy is the business? Since CVX is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into CVX here.
How much cash does CVX generate through its operations?
CVX’s debt level has been constant at around CA$2.58m over the previous year – this includes both the current and long-term debt. At this current level of debt, CVX currently has CA$42.93k remaining in cash and short-term investments for investing into the business. Additionally, CVX has produced CA$254.40k in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 9.88%, indicating that CVX’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable companies since metrics such as return on asset (ROA) requires a positive net income. In CVX’s case, it is able to generate 0.099x cash from its debt capital.
Can CVX pay its short-term liabilities?
At the current liabilities level of CA$1.10m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of CA$1.57m, with a current ratio of 1.43x. For Basic Materials companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can CVX service its debt comfortably?
Since total debt levels have outpaced equities, CVX is a highly leveraged 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 CVX is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.Next Steps:
CVX’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how CVX has been performing in the past. I suggest you continue to research CEMATRIX to get a better picture of the stock by looking at:
- Valuation: What is CVX 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 CVX is currently mispriced by the market.
- Historical Performance: What has CVX’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.