Ucore Rare Metals Inc (CVE:UCU) is a small-cap stock with a market capitalization of CA$52.33m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that UCU is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into UCU here.
How much cash does UCU generate through its operations?
In the previous 12 months, UCU’s rose by about CA$2.51m made up of predominantly near term debt. With this ramp up in debt, UCU currently has CA$2.07m remaining in cash and short-term investments , ready to deploy 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 UCU’s operating efficiency ratios such as ROA here.
Can UCU pay its short-term liabilities?
With current liabilities at CA$661.24k, it appears that the company has been able to meet these obligations given the level of current assets of CA$2.30m, with a current ratio of 3.47x. Though, a ratio greater than 3x may be considered as too high, as UCU could be holding too much capital in a low-return investment environment.
Is UCU’s debt level acceptable?
UCU’s level of debt is low relative to its total equity, at 6.10%. This range is considered safe as UCU is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is virtually non-existent with UCU, and the company has plenty of headroom and ability to raise debt should it need to in the future.Next Steps:
UCU’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 will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for UCU’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Ucore Rare Metals to get a more holistic view of the stock by looking at:
- Historical Performance: What has UCU’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.