Yahoo Finance Comvita Limited (NZSE:CVT): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Comvita Limited (NZSE:CVT), with a market cap of NZ$241.11m. However, an important fact which most ignore is: how financially healthy is the business? 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. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into CVT here.
How does CVT’s operating cash flow stack up against its debt?
CVT has shrunken its total debt levels in the last twelve months, from NZ$86.80m to NZ$66.50m , which comprises of short- and long-term debt. With this debt payback, CVT currently has NZ$4.57m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of CVT’s operating efficiency ratios such as ROA here.
Can CVT pay its short-term liabilities?
With current liabilities at NZ$25.96m, it seems that the business has been able to meet these commitments with a current assets level of NZ$155.88m, leading to a 6x current account ratio. Though, a ratio greater than 3x may be considered as too high, as CVT could be holding too much capital in a low-return investment environment.
Can CVT service its debt comfortably?
With debt reaching 46.72% of equity, CVT may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if CVT’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 CVT, the ratio of 3.14x 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:
CVT’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. 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 CVT has been performing in the past. You should continue to research Comvita to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CVT’s future growth? Take a look at our free research report of analyst consensus for CVT’s outlook.
Valuation: What is CVT 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 CVT 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 pass 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.
