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While small-cap stocks, such as Ramaco Resources, Inc. (NASDAQ:METC) with its market cap of US$235m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes crucial, 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, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into METC here.
How does METC’s operating cash flow stack up against its debt?
In the previous 12 months, METC’s rose by about US$15m . With this increase in debt, METC’s cash and short-term investments stands at US$5.5m , ready to deploy into the business. Moreover, METC has generated US$24m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 163%, indicating that METC’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In METC’s case, it is able to generate 1.63x cash from its debt capital.
Can METC pay its short-term liabilities?
With current liabilities at US$46m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.06x. Generally, for Metals and Mining companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can METC service its debt comfortably?
METC’s level of debt is appropriate relative to its total equity, at 11%. METC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if METC’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 METC, the ratio of 19.88x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving METC ample headroom to grow its debt facilities.
METC’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure METC has company-specific issues impacting its capital structure decisions. I recommend you continue to research Ramaco Resources to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for METC’s future growth? Take a look at our free research report of analyst consensus for METC’s outlook.
- Valuation: What is METC 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 METC 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.