While small-cap stocks, such as Continental Gold Inc (TSX:CNL) with its market cap of CA$621.41M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that CNL is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. 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 CNL here.
Does CNL generate an acceptable amount of cash through operations?
In the previous 12 months, CNL’s rose by about US$47.92M – this includes both the current and long-term debt. With this ramp up in debt, CNL’s cash and short-term investments stands at US$92.94M for investing 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. 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 CNL’s operating efficiency ratios such as ROA here.
Can CNL pay its short-term liabilities?
With current liabilities at US$27.42M, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.51x. Though, anything above 3x is considered high and could mean that CNL has too much idle capital in low-earning investments.
Is CNL’s debt level acceptable?With a debt-to-equity ratio of 12.88%, CNL’s debt level may be seen as prudent. CNL is not taking on too much debt commitment, which may be constraining for future growth. CNL’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
CNL’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 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 CNL has been performing in the past. You should continue to research Continental Gold to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for CNL’s future growth? Take a look at our free research report of analyst consensus for CNL’s outlook.
- 2. Historical Performance: What has CNL’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.
- 3. 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.