Euro Tech Holdings Company Limited (NASDAQ:CLWT) is a small-cap stock with a market capitalization of $6.91M. 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 essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into CLWT here.
Does CLWT generate enough cash through operations?
CLWT has increased its debt level by about $0.7M over the last 12 months , which is mainly comprised of near term debt. With this growth in debt, CLWT currently has $3.8M remaining in cash and short-term investments for investing into the business. Additionally, CLWT has produced cash from operations of $0.2M in the last twelve months, leading to an operating cash to total debt ratio of 21.25%, signalling that CLWT’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CLWT’s case, it is able to generate 0.21x cash from its debt capital.
Does CLWT’s liquid assets cover its short-term commitments?
Looking at CLWT’s most recent $6.5M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.48x. Generally, for Trade Distributors companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can CLWT service its debt comfortably?
With a debt-to-equity ratio of 2.21%, CLWT’s debt level is relatively low. This range is considered safe as CLWT is not taking on too much debt obligation, which may be constraining for future growth.Next Steps:
CLWT’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how CLWT has been performing in the past. I suggest you continue to research Euro Tech Holdings to get a better picture of the stock by looking at:
- 1. Valuation: What is CLWT 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 CLWT is currently mispriced by the market.
- 2. Historical Performance: What has CLWT’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.
- 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.