Investors are always looking for growth in small-cap stocks like AuStar Gold Limited (ASX:AUL), with a market cap of AU$23.35M. However, an important fact which most ignore is: how financially healthy is the business? Since AUL is loss-making right now, it’s vital to understand 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. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into AUL here.
Does AUL generate an acceptable amount of cash through operations?
Over the past year, AUL has reduced its debt from AU$268.28K to AU$90.15K . With this reduction in debt, the current cash and short-term investment levels stands at AU$374.04K for investing into the business. Moving onto cash from operations, 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. 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 AUL’s operating efficiency ratios such as ROA here.
Can AUL meet its short-term obligations with the cash in hand?
Looking at AUL’s most recent AU$1.66M liabilities, it seems that the business is not able to meet these obligations given the level of current assets of AU$946.46K, with a current ratio of 0.57x below the prudent level of 3x.
Is AUL’s debt level acceptable?
With debt at 10.45% of equity, AUL may be thought of as appropriately levered. AUL is not taking on too much debt commitment, which may be constraining for future growth. AUL’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.Next Steps:
Although AUL’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for AUL’s financial health. Other important fundamentals need to be considered alongside. You should continue to research AuStar Gold to get a more holistic view of the stock by looking at:
- Historical Performance: What has AUL’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.