While small-cap stocks, such as CTT Systems AB (OM:CTT) with its market cap of KR2.47B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, this commentary is still very high-level, so I recommend you dig deeper yourself into CTT here.
How does CTT’s operating cash flow stack up against its debt?
CTT has shrunken its total debt levels in the last twelve months, from KR44.20M to KR28.90M , which comprises of short- and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at KR63.70M for investing into the business. On top of this, CTT has produced cash from operations of KR89.50M in the last twelve months, resulting in an operating cash to total debt ratio of 309.69%, signalling that CTT’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CTT’s case, it is able to generate 3.1x cash from its debt capital.
Can CTT meet its short-term obligations with the cash in hand?
Looking at CTT’s most recent KR70.50M liabilities, the company has been able to meet these obligations given the level of current assets of KR191.20M, with a current ratio of 2.71x. Usually, for Aerospace & Defense companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can CTT service its debt comfortably?With debt at 15.89% of equity, CTT may be thought of as appropriately levered. CTT is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
CTT’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, 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 CTT has company-specific issues impacting its capital structure decisions. You should continue to research CTT Systems to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CTT’s future growth? Take a look at our free research report of analyst consensus for CTT’s outlook.
- Valuation: What is CTT 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 CTT is currently mispriced by the market.
- 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.