Yahoo Finance Is Celtic plc’s (LON:CCP) Balance Sheet A Threat To Its Future?
Celtic plc (LON:CCP) is a small-cap stock with a market capitalization of UK£155m. 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? Evaluating financial health as part of your investment thesis is essential, since poor capital management may bring about 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, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into CCP here.
How does CCP’s operating cash flow stack up against its debt?
Over the past year, CCP has maintained its debt levels at around UK£11m which accounts for long term debt. At this stable level of debt, the current cash and short-term investment levels stands at UK£43m for investing into the business. Moreover, CCP has generated UK£23m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 214%, signalling that CCP’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 CCP’s case, it is able to generate 2.14x cash from its debt capital.
Does CCP’s liquid assets cover its short-term commitments?
With current liabilities at UK£54m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.23x. For Entertainment companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can CCP service its debt comfortably?
CCP’s level of debt is appropriate relative to its total equity, at 15%. CCP is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether CCP is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In CCP’s, case, the ratio of 7.49x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving CCP ample headroom to grow its debt facilities.
Next Steps:
CCP’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how CCP has been performing in the past. I suggest you continue to research Celtic to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CCP’s future growth? Take a look at our free research report of analyst consensus for CCP’s outlook.
Valuation: What is CCP 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 CCP 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
