Investors are always looking for growth in small-cap stocks like Robex Resources Inc (CVE:RBX), with a market cap of CA$58m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so 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$41m to CA$32m , which is made up of current and long term debt. With this debt payback, RBX’s cash and short-term investments stands at CA$4m , ready to deploy into the business. Additionally, RBX has produced cash from operations of CA$30m over the same time period, leading to an operating cash to total debt ratio of 93%, meaning that RBX’s operating cash is sufficient to cover its debt. 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 0.93x cash from its debt capital.
Can RBX pay its short-term liabilities?
Looking at RBX’s most recent CA$44m liabilities, it seems that the business may not have an easy time meeting these commitments with a current assets level of CA$14m, leading to a current ratio of 0.32x.
Can RBX service its debt comfortably?
RBX is a relatively highly levered company with a debt-to-equity of 57%. 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 3.47x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as RBX’s high interest coverage is seen as responsible and safe practice.
Next Steps:
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 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 RBX has been performing in the past. I recommend 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.
- Valuation: What is RBX worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether RBX is currently mispriced by the market.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.