How Financially Strong Is Revelo Resources Corp (CVE:RVL)?

Investors are always looking for growth in small-cap stocks like Revelo Resources Corp (CVE:RVL), with a market cap of CA$3.35m. However, an important fact which most ignore is: how financially healthy is the business? Given that RVL is not presently profitable, it’s crucial 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, I know these factors are very high-level, so I suggest you dig deeper yourself into RVL here.

How does RVL’s operating cash flow stack up against its debt?

RVL has increased its debt level by about CA$772.29k over the last 12 months , which is mainly comprised of near term debt. With this increase in debt, the current cash and short-term investment levels stands at CA$1.40m 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 RVL’s operating efficiency ratios such as ROA here.

Can RVL meet its short-term obligations with the cash in hand?

At the current liabilities level of CA$1.31m liabilities, it appears that the company has been able to meet these commitments with a current assets level of CA$1.52m, leading to a 1.16x current account ratio. Usually, for Metals and Mining companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Can RVL service its debt comfortably?

With a debt-to-equity ratio of 24.03%, RVL's debt level may be seen as prudent. RVL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for RVL, and the company also has the ability and headroom to increase debt if needed going forward.

Next Steps:

RVL’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure RVL has company-specific issues impacting its capital structure decisions. I suggest you continue to research Revelo Resources to get a more holistic view of the stock by looking at:

1. Historical Performance: What has RVL'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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.