What does The Colonial Motor Company Limited’s (NZE:CMO) Balance Sheet Tell Us About Its Future?

Author: Heidi Stubbs / Source: Simply Wall St

While small-cap stocks, such as The Colonial Motor Company Limited (NZSE:CMO) with its market cap of NZ$250.44M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Specialty Retail industry facing headwinds from current disruption, even ones that are profitable, tend to be high risk. Assessing first and foremost the financial health is essential. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I recommend you dig deeper yourself into CMO here.

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

CMO has sustained its debt level by about NZ$88.72M over the last 12 months made up of current and long term debt. At this current level of debt, the current cash and short-term investment levels stands at NZ$8.06M , ready to deploy into the business. Moreover, CMO has produced cash from operations of NZ$15.83M over the same time period, leading to an operating cash to total debt ratio of 17.84%, signalling that CMO’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CMO’s case, it is able to generate 0.18x cash from its debt capital.

Can CMO pay its short-term liabilities?

Looking at CMO’s most recent NZ$125.21M liabilities, it appears that the company has been able to meet these commitments with a current assets…

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