Investors are always looking for growth in small-cap stocks like Robex Resources Inc (CVE:RBX), with a market cap of CA$57.95m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into RBX here.
Does RBX produce enough cash relative to debt?
Over the past year, RBX has reduced its debt from CA$42.49m to CA$36.77m – this includes both the current and long-term debt. With this debt payback, the current cash and short-term investment levels stands at CA$2.14m for investing into the business. Additionally, RBX has produced CA$24.21m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 65.85%, meaning that RBX’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In RBX’s case, it is able to generate 0.66x cash from its debt capital.
Can RBX meet its short-term obligations with the cash in hand?
At the current liabilities level of CA$46.28m liabilities, it seems that the business has not been able to meet these commitments with a current assets level of CA$11.15m, leading to a 0.24x current account ratio. which is under the appropriate industry ratio of 3x.
Is RBX’s debt level acceptable?With debt reaching 64.22% of equity, RBX may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if RBX’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For RBX, the ratio of 3.18x 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.
RBX’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. But, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how RBX has been performing in the past. I suggest you continue to research Robex Resources to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RBX’s future growth? Take a look at our free research report of analyst consensus for RBX’s outlook.
- Historical Performance: What has RBX’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.