Investors are always looking for growth in small-cap stocks like American CuMo Mining Corporation (CVE:MLY), with a market cap of CA$17.85m. However, an important fact which most ignore is: how financially healthy is the business? Given that MLY is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, this commentary is still very high-level, so I suggest you dig deeper yourself into MLY here.
How much cash does MLY generate through its operations?
MLY’s debt levels surged from CA$4.93m to CA$7.49m over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, MLY currently has CA$1.48m remaining in cash and short-term investments , ready to deploy into the business. Additionally, MLY has produced CA$142.50k in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 1.90%, signalling that MLY’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In MLY’s case, it is able to generate 0.019x cash from its debt capital.
Does MLY’s liquid assets cover its short-term commitments?
Looking at MLY’s most recent CA$6.16m liabilities, it seems that the business is not able to meet these obligations given the level of current assets of CA$1.55m, with a current ratio of 0.25x below the prudent level of 3x.
Does MLY face the risk of succumbing to its debt-load?With debt reaching 61.00% of equity, MLY 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. Though, since MLY is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, MLY has room for improvement to better cushion for events which may require debt repayment. Furthermore, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how MLY has been performing in the past. I recommend you continue to research American CuMo Mining to get a better picture of the stock by looking at:
- Historical Performance: What has MLY’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.
- 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.