How Financially Strong Is Caleffi Sp.A. (BIT:CLF)?

Investors are always looking for growth in small-cap stocks like Caleffi Sp.A. (BIT:CLF), with a market cap of €22.39M. However, an important fact which most ignore is: how financially healthy is the business? Since CLF 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 CLF here.

Does CLF generate enough cash through operations?

CLF’s debt levels have fallen from €15.22M to €8.21M over the last 12 months – this includes both the current and long-term debt. With this reduction in debt, CLF’s cash and short-term investments stands at €2.56M for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 CLF’s operating efficiency ratios such as ROA here.

Does CLF’s liquid assets cover its short-term commitments?

Looking at CLF’s most recent €23.74M liabilities, it seems that the business has been able to meet these commitments with a current assets level of €39.27M, leading to a 1.65x current account ratio. Usually, for Luxury companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

BIT:CLF Historical Debt Apr 13th 18
BIT:CLF Historical Debt Apr 13th 18

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

CLF is a relatively highly levered company with a debt-to-equity of 55.25%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since CLF is currently loss-making, there’s a question of sustainability of its current operations. 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:

CLF’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure CLF has company-specific issues impacting its capital structure decisions. I suggest you continue to research Caleffi to get a better picture of the stock by looking at: