Is Copper Strike Limited's (ASX:CSE) Balance Sheet A Threat To Its Future?

Investors are always looking for growth in small-cap stocks like Copper Strike Limited (ASX:CSE), with a market cap of AU$11m. However, an important fact which most ignore is: how financially healthy is the business? Since CSE is loss-making right now, it’s essential to evaluate 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, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into CSE here.

Does CSE produce enough cash relative to debt?

In the previous 12 months, CSE's rose by about AU$4m made up of predominantly near term debt. With this increase in debt, CSE currently has AU$715k remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. 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 CSE’s operating efficiency ratios such as ROA here.

Does CSE’s liquid assets cover its short-term commitments?

At the current liabilities level of AU$4m liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of AU$723k, with a current ratio of 0.17x.

Can CSE service its debt comfortably?

CSE’s level of debt is appropriate relative to its total equity, at 17%. This range is considered safe as CSE is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors' risk associated with debt is very low with CSE, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

Although CSE’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 lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I'm sure CSE has company-specific issues impacting its capital structure decisions. I recommend you continue to research Copper Strike to get a more holistic view of the stock by looking at:

1. Historical Performance: What has CSE'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.
2. 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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.