While small-cap stocks, such as Ascendant Resources Inc. (TSE:ASND) with its market cap of CA$29m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into ASND here.
How much cash does ASND generate through its operations?
Over the past year, ASND has ramped up its debt from US$1.5m to US$3.8m , which is mainly comprised of near term debt. With this rise in debt, the current cash and short-term investment levels stands at US$7.4m for investing into the business. Additionally, ASND has generated cash from operations of US$22m in the last twelve months, resulting in an operating cash to total debt ratio of 596%, indicating that ASND’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 ASND’s case, it is able to generate 5.96x cash from its debt capital.
Can ASND pay its short-term liabilities?
At the current liabilities level of US$24m, it seems that the business has been able to meet these obligations given the level of current assets of US$25m, with a current ratio of 1.03x. Generally, for Metals and Mining companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does ASND face the risk of succumbing to its debt-load?
ASND’s level of debt is appropriate relative to its total equity, at 15%. This range is considered safe as ASND is not taking on too much debt obligation, which may be constraining for future growth. We can test if ASND’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 ASND, the ratio of 8.15x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as ASND’s high interest coverage is seen as responsible and safe practice.
ASND’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. I admit this is a fairly basic analysis for ASND’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Ascendant Resources to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ASND’s future growth? Take a look at our free research report of analyst consensus for ASND’s outlook.
- Valuation: What is ASND 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 ASND 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 firstname.lastname@example.org.