Yahoo Finance Cranswick plc (LON:CWK): Time For A Financial Health Check
Cranswick plc (LON:CWK), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is CWK will have to follow strict debt obligations which will reduce its financial flexibility. While CWK has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status.
See our latest analysis for Cranswick
Is financial flexibility worth the lower cost of capital?
Debt capital generally has lower cost of capital compared to equity funding. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. The lack of debt on CWK’s balance sheet may be because it does not have access to cheap capital, or it may believe this trade-off is not worth it. Choosing financial flexibility over capital returns make sense if CWK is a high-growth company. A revenue growth in the teens is not considered high-growth. CWK’s revenue growth of 18% falls into this range. More capital can help the business grow faster. If CWK is not expecting exceptional future growth, then the decision to avoid may cost shareholders in the long term.
Does CWK’s liquid assets cover its short-term commitments?
Since Cranswick doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at CWK’s most recent UK£159m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of UK£257m, with a current ratio of 1.62x. Usually, for Food companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Next Steps:
CWK is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. Since there is also no concerns around CWK’s liquidity needs, this may be its optimal capital structure for the time being. Going forward, CWK’s financial situation may change. Keep in mind I haven’t considered other factors such as how CWK has been performing in the past. You should continue to research Cranswick to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CWK’s future growth? Take a look at our free research report of analyst consensus for CWK’s outlook.
Valuation: What is CWK 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 CWK 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.
