While small-cap stocks, such as Crystal Rock Holdings Inc (AMEX:CRVP) with its market cap of $17.32M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into CRVP here.

How does CRVP’s operating cash flow stack up against its debt?

Over the past year, CRVP has reduced its debt from $20.6M to $18.8M – this includes both the current and long-term debt. With this debt payback, CRVP’s cash and short-term investments stands at $5.6M for investing into the business. On top of this, CRVP has generated cash from operations of $8.1M during the same period of time, resulting in an operating cash to total debt ratio of 43.04%, indicating that CRVP’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CRVP’s case, it is able to generate 0.43x cash from its debt capital.

Can CRVP pay its short-term liabilities?

At the current liabilities level of $8.6M liabilities, the company has been able to meet these obligations given the level of current assets of $16.5M, with a current ratio of 1.92x. Usually, for Beverage companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Can CRVP service its debt comfortably?

CRVP is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. 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 CRVP’s case, the ratio of 1.37x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as CRVP’s low interest coverage already puts the company at higher risk of default.

Next Steps:

Although CRVP’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for CRVP’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Crystal Rock Holdings to get a better picture of the stock by looking at:

• 1. Valuation: What is CRVP 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 CRVP is currently mispriced by the market.

• 2. Historical Performance: What has CRVP’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.

• 3. 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.