AuStar Gold Limited (ASX:AUL) is a small-cap stock with a market capitalization of AU$11.43m. 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, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into AUL here.
How much cash does AUL generate through its operations?
Over the past year, AUL has ramped up its debt from AU$71.04k to AU$739.38k . With this rise in debt, AUL currently has AU$855.48k remaining in cash and short-term investments 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 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 AU$1.55m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.47x. Generally, for Metals and Mining companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is AUL’s debt level acceptable?With a debt-to-equity ratio of 10.45%, AUL’s debt level may be seen as prudent. AUL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for AUL, and the company also has the ability and headroom to increase debt if needed going forward.
AUL’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 AUL has been performing in the past. I suggest you continue to research AuStar Gold to get a better picture 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.