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Investors are always looking for growth in small-cap stocks like Molori Energy Inc. (CVE:MOL), with a market cap of CA$1.9m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Oil and Gas industry, in particular ones that run negative earnings, tend to be high risk. Evaluating financial health as part of your investment thesis is crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into MOL here.
How does MOL’s operating cash flow stack up against its debt?
Over the past year, MOL has borrowed debt capital of around CA$257k – which includes long-term debt. With this growth in debt, MOL currently has CA$152k remaining in cash and short-term investments for investing 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of MOL’s operating efficiency ratios such as ROA here.
Can MOL pay its short-term liabilities?
At the current liabilities level of CA$977k, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.59x.
Is MOL’s debt level acceptable?
MOL’s level of debt is appropriate relative to its total equity, at 24%. This range is considered safe as MOL is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for MOL, and the company also has the ability and headroom to increase debt if needed going forward.
MOL has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. However, 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 MOL has company-specific issues impacting its capital structure decisions. You should continue to research Molori Energy to get a more holistic view of the stock by looking at:
- Valuation: What is MOL 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 MOL is currently mispriced by the market.
- Historical Performance: What has MOL’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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.