Stock Analysis

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

BIT:CLF
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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.

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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.

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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:

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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.