Yahoo Finance What You Should Know About Clipper Logistics plc's (LON:CLG) Financial Strength
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Clipper Logistics plc (LON:CLG) is a small-cap stock with a market capitalization of UK£299m. 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 crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, potential investors would need to take a closer look, and I suggest you dig deeper yourself into CLG here.
CLG’s Debt (And Cash Flows)
CLG has built up its total debt levels in the last twelve months, from UK£41m to UK£46m – this includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at UK£2.1m , ready to be used for running the business. Additionally, CLG has generated UK£16m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 35%, indicating that CLG’s current level of operating cash is high enough to cover debt.
Can CLG meet its short-term obligations with the cash in hand?
Looking at CLG’s UK£134m in current liabilities, it seems that the business may not have an easy time meeting these commitments with a current assets level of UK£121m, leading to a current ratio of 0.9x. The current ratio is the number you get when you divide current assets by current liabilities.
Does CLG face the risk of succumbing to its debt-load?
With total debt exceeding equity, CLG is considered a highly levered company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. We can test if CLG’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For CLG, the ratio of 9.8x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving CLG ample headroom to grow its debt facilities.
Next Steps:
CLG’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for CLG's financial health. Other important fundamentals need to be considered alongside. You should continue to research Clipper Logistics to get a more holistic view 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.
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