Azarga Uranium Corp (TSX:AZZ) is a small-cap stock with a market capitalization of CA$21.21M. 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, especially ones that are currently loss-making, tend to be high risk. Assessing first and foremost the financial health is essential. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I recommend you dig deeper yourself into AZZ here.
Does AZZ generate an acceptable amount of cash through operations?
Over the past year, AZZ has reduced its debt from US$2.34M to US$1.94M , which is made up of current and long term debt. With this debt repayment, AZZ’s cash and short-term investments stands at US$1.01M for investing 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 assess some of AZZ’s operating efficiency ratios such as ROA here.
Does AZZ’s liquid assets cover its short-term commitments?
At the current liabilities level of US$2.97M liabilities, it appears that the company is not able to meet these obligations given the level of current assets of US$1.04M, with a current ratio of 0.35x below the prudent level of 3x.
Is AZZ’s debt level acceptable?AZZ’s level of debt is low relative to its total equity, at 8.84%. AZZ is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is extremely low for AZZ, and the company also has the ability and headroom to increase debt if needed going forward.
AZZ’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. In addition to this, 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. You should continue to research Azarga Uranium to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for AZZ’s future growth? Take a look at our free research report of analyst consensus for AZZ’s outlook.
- 2. 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.
- 3. 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.