While small-cap stocks, such as Nickel North Exploration Corp (CVE:NNX) with its market cap of CA$2.30m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that NNX is not presently profitable, 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. However, since I only look at basic financial figures, I suggest you dig deeper yourself into NNX here.
How does NNX’s operating cash flow stack up against its debt?
NNX’s debt levels surged from CA$302.96k to CA$624.15k over the last 12 months . With this growth in debt, NNX currently has CA$116.49k remaining in cash and short-term investments for investing 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of NNX’s operating efficiency ratios such as ROA here.
Does NNX’s liquid assets cover its short-term commitments?
Looking at NNX’s most recent CA$649.95k liabilities, it appears that the company is not able to meet these obligations given the level of current assets of CA$162.96k, with a current ratio of 0.25x below the prudent level of 3x.
Is NNX’s debt level acceptable?
With debt at 6.44% of equity, NNX may be thought of as having low leverage. NNX is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is extremely low for NNX, and the company also has the ability and headroom to increase debt if needed going forward.Next Steps:
NNX’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure NNX has company-specific issues impacting its capital structure decisions. You should continue to research Nickel North Exploration to get a better picture of the stock by looking at:
- Historical Performance: What has NNX’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.