What Does Corbion N.V.'s (AMS:CRBN) Balance Sheet Tell Us About It?
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Investors are always looking for growth in small-cap stocks like Corbion N.V. (AMS:CRBN), with a market cap of €1.7b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is essential, 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, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into CRBN here.
Does CRBN Produce Much Cash Relative To Its Debt?
CRBN has built up its total debt levels in the last twelve months, from €184m to €250m – this includes long-term debt. With this increase in debt, CRBN's cash and short-term investments stands at €47m , ready to be used for running the business. Additionally, CRBN has produced €100m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 40%, meaning that CRBN’s operating cash is sufficient to cover its debt.
Can CRBN meet its short-term obligations with the cash in hand?
With current liabilities at €260m, it seems that the business has been able to meet these commitments with a current assets level of €350m, leading to a 1.34x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. For Chemicals companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Does CRBN face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 48%, CRBN can be considered as an above-average leveraged 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 CRBN’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 CRBN, the ratio of 17.9x suggests that interest is comfortably 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:
CRBN’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. Since there is also no concerns around CRBN's liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven't considered other factors such as how CRBN has been performing in the past. You should continue to research Corbion to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for CRBN’s future growth? Take a look at our free research report of analyst consensus for CRBN’s outlook.
Valuation: What is CRBN 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 CRBN 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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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
