Oryx Petroleum Corporation Limited (TSE:OXC) is a small-cap stock with a market capitalization of US$108.14m. 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, are more likely to be 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. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into OXC here.
How much cash does OXC generate through its operations?
OXC has built up its total debt levels in the last twelve months, from US$75.48m to US$80.24m , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$21.61m , 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of OXC’s operating efficiency ratios such as ROA here.
Can OXC pay its short-term liabilities?
With current liabilities at US$42.05m, it seems that the business has been able to meet these commitments with a current assets level of US$59.22m, leading to a 1.41x current account ratio. Usually, for Oil and Gas companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does OXC face the risk of succumbing to its debt-load?
With debt at 14.67% of equity, OXC may be thought of as appropriately levered. OXC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for OXC, and the company also has the ability and headroom to increase debt if needed going forward.Next Steps:
OXC’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. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how OXC has been performing in the past. I recommend you continue to research Oryx Petroleum to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for OXC’s future growth? Take a look at our free research report of analyst consensus for OXC’s outlook.
- Historical Performance: What has OXC’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 editorial-team@simplywallst.com.