While small-cap stocks, such as Oryx Petroleum Corporation Limited (TSE:OXC) with its market cap of CA$102m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Oil and Gas companies, especially ones that are currently loss-making, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis 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 OXC here.
Does OXC produce enough cash relative to debt?
OXC has sustained its debt level by about US$79m over the last 12 months – this includes long-term debt. At this current level of debt, the current cash and short-term investment levels stands at US$17m , ready to deploy 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 OXC’s operating efficiency ratios such as ROA here.
Can OXC pay its short-term liabilities?
At the current liabilities level of US$150m, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$62m, leading to a current ratio of 0.41x.
Can OXC service its debt comfortably?
OXC’s level of debt is appropriate relative to its total equity, at 14%. OXC is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with OXC, and the company has plenty of headroom and ability to raise debt should it need to in the future.
OXC has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. But it is still important for shareholders to understand why the company isn’t increasing its cheaper cost of capital to fund future growth, especially when liquidity may also be an issue. I admit this is a fairly basic analysis for OXC’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Oryx Petroleum to get a more holistic view of the stock by looking at:
- 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 firstname.lastname@example.org.