Energy Fuels Inc (TSE:EFR) is a small-cap stock with a market capitalization of CA$380m. 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. So, understanding the company’s financial health becomes crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into EFR here.
Does EFR produce enough cash relative to debt?
Over the past year, EFR has reduced its debt from US$28m to US$17m – this includes long-term debt. With this reduction in debt, EFR currently has US$42m remaining in cash and short-term investments 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 EFR’s operating efficiency ratios such as ROA here.
Can EFR meet its short-term obligations with the cash in hand?
With current liabilities at US$8.0m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 7.42x. Having said that, a ratio above 3x may be considered excessive by some investors.
Does EFR face the risk of succumbing to its debt-load?
With debt at 12% of equity, EFR may be thought of as appropriately levered. This range is considered safe as EFR is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for EFR, and the company also has the ability and headroom to increase debt if needed going forward.
EFR’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure EFR has company-specific issues impacting its capital structure decisions. I suggest you continue to research Energy Fuels to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EFR’s future growth? Take a look at our free research report of analyst consensus for EFR’s outlook.
- Valuation: What is EFR 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 EFR 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.
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 email@example.com.