Investors are always looking for growth in small-cap stocks like Oyster Oil and Gas Ltd (CVE:OY), with a market cap of CA$6.57m. However, an important fact which most ignore is: how financially healthy is the business? 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 crucial. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into OY here.
How much cash does OY generate through its operations?
OY has built up its total debt levels in the last twelve months, from CA$371.41k to CA$0 made up of predominantly near term debt. With this growth in debt, the current cash and short-term investment levels stands at CA$128.91k 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. For this article’s sake, I won’t be looking at this today, but you can assess some of OY’s operating efficiency ratios such as ROA here.
Can OY pay its short-term liabilities?
With current liabilities at CA$1.67m, the company has not been able to meet these commitments with a current assets level of CA$152.74k, leading to a 0.091x current account ratio. which is under the appropriate industry ratio of 3x.
Can OY service its debt comfortably?With a debt-to-equity ratio of 11.56%, OY’s debt level may be seen as prudent. OY is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for OY, and the company also has the ability and headroom to increase debt if needed going forward.
Although OY’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. Furthermore, 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 OY has company-specific issues impacting its capital structure decisions. I suggest you continue to research Oyster Oil and Gas to get a better picture of the stock by looking at:
- Historical Performance: What has OY’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.