Bellatrix Exploration Ltd (TSE:BXE) is a small-cap stock with a market capitalization of CA$79.24m. 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? Companies operating in the Oil and Gas industry, especially ones that are currently loss-making, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into BXE here.
How much cash does BXE generate through its operations?
Over the past year, BXE has ramped up its debt from CA$381.25m to CA$403.79m , which is made up of current and long term debt. With this growth in debt, BXE’s cash and short-term investments stands at CA$3.71m , ready to deploy into the business. On top of this, BXE has produced CA$55.21m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 13.67%, signalling that BXE’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In BXE’s case, it is able to generate 0.14x cash from its debt capital.
Does BXE’s liquid assets cover its short-term commitments?
At the current liabilities level of CA$100.49m liabilities, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.81x, which is below the prudent industry ratio of 3x.
Does BXE face the risk of succumbing to its debt-load?BXE is a relatively highly levered company with a debt-to-equity of 55.04%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since BXE is presently 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.
BXE’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for BXE’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Bellatrix Exploration to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BXE’s future growth? Take a look at our free research report of analyst consensus for BXE’s outlook.
- Valuation: What is BXE 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 BXE is currently mispriced by the market.
- 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.