Investors are always looking for growth in small-cap stocks like Emgold Mining Corporation (TSXV:EMR), with a market cap of CA$1.22M. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into EMR here.
Does EMR generate an acceptable amount of cash through operations?
In the previous 12 months, EMR’s rose by about US$8.47K , which is mainly comprised of near term debt. With this ramp up in debt, EMR’s cash and short-term investments stands at US$73.47K for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 examine some of EMR’s operating efficiency ratios such as ROA here.
Can EMR pay its short-term liabilities?
Looking at EMR’s most recent US$868.02K liabilities, it appears that the company has not been able to meet these commitments with a current assets level of US$86.31K, leading to a 0.099x current account ratio. which is under the appropriate industry ratio of 3x.
Is EMR’s debt level acceptable?With a debt-to-equity ratio of 2.13%, EMR’s debt level is relatively low. EMR is not taking on too much debt commitment, which may be constraining for future growth.
EMR’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. 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 EMR has been performing in the past. You should continue to research Emgold Mining to get a more holistic view of the stock by looking at:
- Historical Performance: What has EMR’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.