AuStar Gold Limited (ASX:AUL) is a small-cap stock with a market capitalization of A$12.22M. 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? Since AUL is loss-making right now, it’s essential to assess 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, I know these factors are very high-level, so I recommend you dig deeper yourself into AUL here.
Does AUL generate enough cash through operations?
AUL has shrunken its total debt levels in the last twelve months, from A$0.3M to A$0.1M , which is mainly comprised of near term debt. With this debt repayment, AUL’s cash and short-term investments stands at A$0.4M for investing into the business. Though its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 AUL’s operating efficiency ratios such as ROA here.
Can AUL pay its short-term liabilities?
With current liabilities at A$1.7M liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.57x, which is below the prudent industry ratio of 3x.
Does AUL face the risk of succumbing to its debt-load?With a debt-to-equity ratio of 1.92%, AUL’s debt level is relatively low. AUL is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is virtually non-existent with AUL, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Are you a shareholder? AUL’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Furthermore, the company may struggle to meet its near term liabilities should an adverse event occur. Given that AUL’s financial situation may change. I suggest keeping on top of market expectations for AUL’s future growth on our free analysis platform.
Are you a potential investor? AUL appears to have maintained a sensible level of debt, meaning there’s some room to take on more debt if needed. But its current cash flow coverage of existing debt, in addition to the low liquidity, is concerning. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of AUL’s track record. You should continue your analysis by taking a look at AUL’s past performance analysis on our free platform to conclude on AUL’s financial health.