While small-cap stocks, such as Octanex Limited (ASX:OXX) with its market cap of AU$7.04M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Oil and Gas companies, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into OXX here.
Does OXX generate an acceptable amount of cash through operations?
OXX has increased its debt level by about AU$10.16M over the last 12 months comprising of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at AU$5.67M for investing 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of OXX’s operating efficiency ratios such as ROA here.
Can OXX meet its short-term obligations with the cash in hand?
Looking at OXX’s most recent AU$883.89K liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 6.76x. Though, anything about 3x may be excessive, since OXX may be leaving too much capital in low-earning investments.
Can OXX service its debt comfortably?With debt at 35.27% of equity, OXX may be thought of as appropriately levered. This range is considered safe as OXX is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is very low with OXX, and the company has plenty of headroom and ability to raise debt should it need to in the future.
OXX’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 exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how OXX has been performing in the past. I suggest you continue to research Octanex to get a more holistic view of the stock by looking at:
- Valuation: What is OXX 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 OXX is currently mispriced by the market.
- Historical Performance: What has OXX’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.