What You Must Know About Ceapro Inc's (CVE:CZO) Financial Strength

Ceapro Inc (CVE:CZO) is a small-cap stock with a market capitalization of CA$41.67m. 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? Given that CZO is not presently profitable, it’s vital to assess 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 recommend you dig deeper yourself into CZO here.

Does CZO produce enough cash relative to debt?

Over the past year, CZO has reduced its debt from CA$2.53m to CA$1.53m – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at CA$6.17m for investing into the business. On top of this, CZO has produced CA$1.57m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 103.09%, meaning that CZO’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In CZO’s case, it is able to generate 1.03x cash from its debt capital.

Can CZO meet its short-term obligations with the cash in hand?

Looking at CZO’s most recent CA$4.07m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of CA$9.00m, with a current ratio of 2.21x. Usually, for Chemicals companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Does CZO face the risk of succumbing to its debt-load?

CZO’s level of debt is low relative to its total equity, at 5.92%. This range is considered safe as CZO is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. CZO's risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.

Next Steps:

CZO has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure CZO has company-specific issues impacting its capital structure decisions. I recommend you continue to research Ceapro to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for CZO’s future growth? Take a look at our free research report of analyst consensus for CZO’s outlook.
2. Valuation: What is CZO 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 CZO is currently mispriced by the market.
3. 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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.