While small-cap stocks, such as International Battery Metals Ltd (CNSX:IBAT) with its market cap of CA$13.02m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since IBAT is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I recommend you dig deeper yourself into IBAT here.
How does IBAT’s operating cash flow stack up against its debt?
In the previous 12 months, IBAT’s rose by about CA$71.87k , which is mainly comprised of near term debt. With this growth in debt, the current cash and short-term investment levels stands at CA$231.35k , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 IBAT’s operating efficiency ratios such as ROA here.
Can IBAT meet its short-term obligations with the cash in hand?
Looking at IBAT’s most recent CA$237.28k liabilities, it appears that the company has been able to meet these commitments with a current assets level of CA$279.85k, leading to a 1.18x current account ratio. Generally, for Metals and Mining companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can IBAT service its debt comfortably?With debt at 9.64% of equity, IBAT may be thought of as having low leverage. This range is considered safe as IBAT is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is virtually non-existent with IBAT, and the company has plenty of headroom and ability to raise debt should it need to in the future.
IBAT’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for IBAT’s financial health. Other important fundamentals need to be considered alongside. You should continue to research International Battery Metals to get a better picture of the stock by looking at:
- Historical Performance: What has IBAT’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.