Investors are always looking for growth in small-cap stocks like Clean TeQ Holdings Limited (ASX:CLQ), with a market cap of AU$790.65m. However, an important fact which most ignore is: how financially healthy is the business? Since CLQ is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I suggest you dig deeper yourself into CLQ here.
Does CLQ produce enough cash relative to debt?
CLQ has built up its total debt levels in the last twelve months, from AU$2.68m to AU$0 – this includes both the current and long-term debt. With this rise in debt, CLQ currently has AU$88.86m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of CLQ’s operating efficiency ratios such as ROA here.
Can CLQ pay its short-term liabilities?
With current liabilities at AU$6.37m, it seems that the business has been able to meet these obligations given the level of current assets of AU$92.04m, with a current ratio of 14.45x. However, anything above 3x is considered high and could mean that CLQ has too much idle capital in low-earning investments.
Is CLQ’s debt level acceptable?
CLQ’s level of debt is low relative to its total equity, at 2.76%. This range is considered safe as CLQ is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is extremely low for CLQ, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
CLQ’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how CLQ has been performing in the past. You should continue to research Clean TeQ Holdings to get a better picture of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for CLQ’s future growth? Take a look at our free research report of analyst consensus for CLQ’s outlook.
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Historical Performance: What has CLQ’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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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.