Investors are always looking for growth in small-cap stocks like New Concept Energy Inc (AMEX:GBR), with a market cap of US$2.73M. However, an important fact which most ignore is: how financially healthy is the business? Oil and Gas companies, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into GBR here.
Does GBR generate an acceptable amount of cash through operations?
Over the past year, GBR has reduced its debt from US$392.00K to US$324.00K , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$419.00K , ready to deploy 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 take a look at some of GBR’s operating efficiency ratios such as ROA here.
Does GBR’s liquid assets cover its short-term commitments?
At the current liabilities level of US$556.00K liabilities, it appears that the company has not been able to meet these commitments with a current assets level of US$522.00K, leading to a 0.94x current account ratio. which is under the appropriate industry ratio of 3x.
Can GBR service its debt comfortably?
With debt reaching 50.94% of equity, GBR 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. Though, since GBR is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.Next Steps:
GBR’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Furthermore, 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 GBR has been performing in the past. I suggest you continue to research New Concept Energy to get a better picture of the stock by looking at:
- Historical Performance: What has GBR’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.