K92 Mining Inc (TSXV:KNT) is a small-cap stock with a market capitalization of CA$85.73M. 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 KNT is not presently profitable, it’s crucial 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 KNT here.
Does KNT generate an acceptable amount of cash through operations?
KNT’s debt levels surged from US$1.43M to US$7.33M over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, KNT currently has US$4.29M remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of KNT’s operating efficiency ratios such as ROA here.
Can KNT pay its short-term liabilities?
At the current liabilities level of US$10.53M liabilities, it seems that the business is not able to meet these obligations given the level of current assets of US$5.60M, with a current ratio of 0.53x below the prudent level of 3x.
Is KNT’s debt level acceptable?With a debt-to-equity ratio of 79.79%, KNT 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 KNT is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
KNT’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 lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for KNT’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research K92 Mining to get a better picture of the stock by looking at:
- 1. Historical Performance: What has KNT’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.