Azarga Uranium Corp (TSE:AZZ) is a small-cap stock with a market capitalization of CA$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? Oil and Gas companies, in particular ones that run negative earnings, tend to be high risk. Assessing first and foremost the financial health is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into AZZ here.
How much cash does AZZ generate through its operations?
AZZ has built up its total debt levels in the last twelve months, from US$2m to US$3m – this includes both the current and long-term debt. With this increase in debt, AZZ’s cash and short-term investments stands at US$132k , 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 AZZ’s operating efficiency ratios such as ROA here.
Does AZZ’s liquid assets cover its short-term commitments?
With current liabilities at US$2m, it seems that the business may not have an easy time meeting these commitments with a current assets level of US$167k, leading to a current ratio of 0.086x.
Does AZZ face the risk of succumbing to its debt-load?
AZZ’s level of debt is appropriate relative to its total equity, at 11%. AZZ is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for AZZ, and the company also has the ability and headroom to increase debt if needed going forward.
Although AZZ’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. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure AZZ has company-specific issues impacting its capital structure decisions. I recommend you continue to research Azarga Uranium to get a better picture of the stock by looking at:
- Valuation: What is AZZ worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AZZ is currently mispriced by the market.
- Historical Performance: What has AZZ’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.
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 firstname.lastname@example.org.