Coro Mining Corp (TSX:COP) is a small-cap stock with a market capitalization of CA$58.67M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that COP is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into COP here.
Does COP generate enough cash through operations?
COP has built up its total debt levels in the last twelve months, from US$1.30M to US$3.35M , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$2.81M 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 COP’s operating efficiency ratios such as ROA here.
Does COP’s liquid assets cover its short-term commitments?
With current liabilities at US$14.23M, the company has not been able to meet these commitments with a current assets level of US$8.07M, leading to a 0.57x current account ratio. which is under the appropriate industry ratio of 3x.
Does COP face the risk of succumbing to its debt-load?With a debt-to-equity ratio of 45.96%, COP can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since COP is presently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
At its current level of cash flow coverage, COP has room for improvement to better cushion for events which may require debt repayment. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how COP has been performing in the past. You should continue to research Coro Mining to get a better picture of the stock by looking at:
- Historical Performance: What has COP’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.