Cereal Planet PLC (WSE:CRP) is a small-cap stock with a market capitalization of ZŁ19.58M. 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? Assessing first and foremost the financial health is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into CRP here.
Does CRP generate enough cash through operations?
Over the past year, CRP has ramped up its debt from €1.32M to €2.22M , which comprises of short- and long-term debt. With this growth in debt, CRP currently has €651.00K remaining in cash and short-term investments , ready to deploy 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of CRP’s operating efficiency ratios such as ROA here.
Can CRP pay its short-term liabilities?
At the current liabilities level of €7.66M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.11x. Generally, for Food companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is CRP’s debt level acceptable?With a debt-to-equity ratio of 71.05%, CRP can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
CRP’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 an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure CRP has company-specific issues impacting its capital structure decisions. You should continue to research Cereal Planet to get a better picture of the stock by looking at:
- Historical Performance: What has CRP’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.