Yahoo Finance What Investors Should Know About Clipper Logistics plc’s (LON:CLG) Financial Strength
While small-cap stocks, such as Clipper Logistics plc (LON:CLG) with its market cap of UK£295m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is vital, 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. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into CLG here.
How does CLG’s operating cash flow stack up against its debt?
Over the past year, CLG has maintained its debt levels at around UK£55m including long-term debt. At this current level of debt, CLG currently has UK£2.3m remaining in cash and short-term investments , ready to deploy into the business. On top of this, CLG has generated UK£19m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 34%, indicating that CLG’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CLG’s case, it is able to generate 0.34x cash from its debt capital.
Does CLG’s liquid assets cover its short-term commitments?
Looking at CLG’s UK£114m in current liabilities, it seems that the business may not be able to easily meet these obligations given the level of current assets of UK£98m, with a current ratio of 0.86x.
Is CLG’s debt level acceptable?
Since total debt levels have outpaced equities, CLG is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In CLG’s case, the ratio of 9.43x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
Although CLG’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure CLG has company-specific issues impacting its capital structure decisions. I recommend you continue to research Clipper Logistics to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CLG’s future growth? Take a look at our free research report of analyst consensus for CLG’s outlook.
Valuation: What is CLG 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 CLG 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.
