What You Must Know About Blackham Resources Limited's (ASX:BLK) Financial Strength

Investors are always looking for growth in small-cap stocks like Blackham Resources Limited (ASX:BLK), with a market cap of A$19.03M. However, an important fact which most ignore is: how financially healthy is the business? Given that BLK is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I suggest you dig deeper yourself into BLK here.

Does BLK generate enough cash through operations?

BLK has built up its total debt levels in the last twelve months, from A$29.7M to A$39.6M , which comprises of short- and long-term debt. With this growth in debt, BLK currently has A$18.5M remaining in cash and short-term investments for investing into the business. Moreover, BLK has produced A$24.7M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 62.27%, signalling that BLK’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable companies since metrics such as return on asset (ROA) requires a positive net income. In BLK’s case, it is able to generate 0.62x cash from its debt capital.

Can BLK meet its short-term obligations with the cash in hand?

Looking at BLK’s most recent A$52.3M liabilities, the company has not been able to meet these commitments with a current assets level of A$35.4M, leading to a 0.68x current account ratio. which is under the appropriate industry ratio of 3x.

Can BLK service its debt comfortably?

BLK is a relatively highly levered company with a debt-to-equity of 45.90%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since BLK is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

Although BLK’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. But, its low liquidity raises concerns over whether short term obligations can be met in time, and increasing debt funding to meet these needs could prove difficult. I admit this is a fairly basic analysis for BLK's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Blackham Resources to get a better picture of the stock by looking at:

• 1. Historical Performance: What has BLK'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.

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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.