Investors are always looking for growth in small-cap stocks like Northern Vertex Mining Corp (TSXV:NEE), with a market cap of CA$91.05M. However, an important fact which most ignore is: how financially healthy is the business? Since NEE is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into NEE here.
How does NEE’s operating cash flow stack up against its debt?
In the previous 12 months, NEE’s rose by about CA$16.31M – this includes both the current and long-term debt. With this increase in debt, NEE currently has CA$24.99M remaining in cash and short-term investments , ready to deploy 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. For this article’s sake, I won’t be looking at this today, but you can assess some of NEE’s operating efficiency ratios such as ROA here.
Can NEE pay its short-term liabilities?
Looking at NEE’s most recent CA$4.43M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 5.7x. Though, a ratio greater than 3x may be considered as too high, as NEE could be holding too much capital in a low-return investment environment.
Is NEE’s debt level acceptable?With a debt-to-equity ratio of 63.51%, NEE can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since NEE 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, NEE has room for improvement to better cushion for events which may require debt repayment. However, 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 NEE has been performing in the past. You should continue to research Northern Vertex Mining to get a more holistic view of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
- 1. Historical Performance: What has NEE’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 NEE’s historicals for more clarity.
- 2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a free list of these great stocks here.