While small-cap stocks, such as Continental Gold Inc (TSE:CNL) with its market cap of CA$471m, 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 CNL is loss-making right now, 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. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into CNL here.
How does CNL’s operating cash flow stack up against its debt?
CNL has built up its total debt levels in the last twelve months, from US$45m to US$120m – this includes both the current and long-term debt. With this rise in debt, CNL currently has US$58m remaining in cash and short-term investments 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 take a look at some of CNL’s operating efficiency ratios such as ROA here.
Can CNL pay its short-term liabilities?
With current liabilities at US$23m, it appears that the company has been able to meet these commitments with a current assets level of US$64m, leading to a 2.74x current account ratio. Generally, for Metals and Mining companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is CNL’s debt level acceptable?
CNL’s level of debt is appropriate relative to its total equity, at 33%. CNL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. 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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure CNL has company-specific issues impacting its capital structure decisions. I suggest you continue to research Continental Gold to get a more holistic view of the stock by looking at:
- Valuation: What is CNL 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 CNL is currently mispriced by the market.
- 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.
- 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.