Is Corsa Coal Corp's (CVE:CSO) Balance Sheet A Threat To Its Future?

Corsa Coal Corp (CVE:CSO) is a small-cap stock with a market capitalization of US$109.92m. 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? So, understanding the company's financial health becomes essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. 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 recommend you dig deeper yourself into CSO here.

How does CSO’s operating cash flow stack up against its debt?

Over the past year, CSO has reduced its debt from US$40.85m to US$33.93m , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$19.92m for investing into the business. On top of this, CSO has produced US$27.61m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 81.36%, signalling that CSO’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CSO’s case, it is able to generate 0.81x cash from its debt capital.

Does CSO’s liquid assets cover its short-term commitments?

At the current liabilities level of US$54.29m liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$71.69m, leading to a 1.32x current account ratio. Generally, for Metals and Mining companies, this is a reasonable ratio as there's enough of a cash buffer without holding too capital in low return investments.

Can CSO service its debt comfortably?

CSO’s level of debt is appropriate relative to its total equity, at 23.27%. This range is considered safe as CSO is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether CSO is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In CSO's, case, the ratio of 9.85x suggests that interest is appropriately 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.

Next Steps:

CSO’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. 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 CSO has been performing in the past. You should continue to research Corsa Coal to get a more holistic view of the stock by looking at:

1. Historical Performance: What has CSO'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.
2. 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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.