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While small-cap stocks, such as Copper Strike Limited (ASX:CSE) with its market cap of AU$12m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since CSE is loss-making right now, it’s essential to assess 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. However, this commentary is still very high-level, so I suggest you dig deeper yourself into CSE here.
Does CSE produce enough cash relative to debt?
CSE has sustained its debt level by about AU$4.2m over the last 12 months . At this constant level of debt, CSE currently has AU$468k remaining in cash and short-term investments , ready to deploy 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 CSE’s operating efficiency ratios such as ROA here.
Can CSE pay its short-term liabilities?
With current liabilities at AU$4.2m, it appears that the company may not have an easy time meeting these commitments with a current assets level of AU$510k, leading to a current ratio of 0.12x.
Can CSE service its debt comfortably?
CSE’s level of debt is appropriate relative to its total equity, at 33%. This range is considered safe as CSE is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for CSE, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
CSE’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for CSE’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Copper Strike to get a more holistic view of the stock by looking at:
- 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.
- 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.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.