Is Almonty Industries Inc. (TSE:AII) A Financially Sound Company?
While small-cap stocks, such as Almonty Industries Inc. (TSE:AII) with its market cap of CA$152m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since AII is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. Nevertheless, potential investors would need to take a closer look, and I recommend you dig deeper yourself into AII here.
AII’s Debt (And Cash Flows)
AII has sustained its debt level by about CA$53m over the last 12 months – this includes long-term debt. At this constant level of debt, AII’s cash and short-term investments stands at CA$9.5m , ready to be used for running the business. Moreover, AII has generated cash from operations of CA$15m over the same time period, resulting in an operating cash to total debt ratio of 28%, meaning that AII’s current level of operating cash is high enough to cover debt.
Can AII meet its short-term obligations with the cash in hand?
With current liabilities at CA$47m, the company may not have an easy time meeting these commitments with a current assets level of CA$23m, leading to a current ratio of 0.5x. The current ratio is calculated by dividing current assets by current liabilities.
Does AII face the risk of succumbing to its debt-load?
AII is a highly-leveraged company with debt exceeding equity by over 100%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. But since AII is currently loss-making, there’s a question of sustainability of its current operations. 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:
AII’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. This is only a rough assessment of financial health, and I’m sure AII has company-specific issues impacting its capital structure decisions. I recommend you continue to research Almonty Industries to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AII’s future growth? Take a look at our free research report of analyst consensus for AII’s outlook.
Valuation: What is AII 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 AII 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.
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