Investors are always looking for growth in small-cap stocks like Tahoe Resources Inc (TSX:THO), with a market cap of CA$1.96B. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into THO here.
Does THO generate enough cash through operations?
THO’s debt levels have fallen from US$50.95M to US$42.75M over the last 12 months , which is made up of current and long term debt. With this debt repayment, THO’s cash and short-term investments stands at US$125.99M , ready to deploy into the business. On top of this, THO has produced US$234.26M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 547.93%, indicating that THO’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In THO’s case, it is able to generate 5.48x cash from its debt capital.
Can THO meet its short-term obligations with the cash in hand?
At the current liabilities level of US$155.83M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$299.08M, leading to a 1.92x current account ratio. For Metals and Mining companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can THO service its debt comfortably?With a debt-to-equity ratio of 1.63%, THO’s debt level is relatively low. THO is not taking on too much debt commitment, which may be constraining for future growth. We can test if THO’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For THO, the ratio of 50.28x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
THO has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how THO has been performing in the past. I suggest you continue to research Tahoe Resources to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for THO’s future growth? Take a look at our free research report of analyst consensus for THO’s outlook.
- 2. Valuation: What is THO 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 THO is currently mispriced by the market.
- 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.