Atico Mining Corporation (CVE:ATY) is a small-cap stock with a market capitalization of CA$28m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Assessing first and foremost the financial health is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into ATY here.
How much cash does ATY generate through its operations?
ATY has shrunken its total debt levels in the last twelve months, from US$7.6m to US$5.2m , which also accounts for long term debt. With this debt payback, ATY’s cash and short-term investments stands at US$4.4m for investing into the business. On top of this, ATY has generated cash from operations of US$18m during the same period of time, leading to an operating cash to total debt ratio of 338%, indicating that ATY’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 ATY’s case, it is able to generate 3.38x cash from its debt capital.
Does ATY’s liquid assets cover its short-term commitments?
At the current liabilities level of US$17m, it seems that the business has been able to meet these commitments with a current assets level of US$24m, leading to a 1.4x 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.
Is ATY’s debt level acceptable?
ATY’s level of debt is appropriate relative to its total equity, at 10%. This range is considered safe as ATY is not taking on too much debt obligation, which may be constraining for future growth. We can test if ATY’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 ATY, the ratio of 7.82x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as ATY’s high interest coverage is seen as responsible and safe practice.
ATY has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for ATY’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Atico Mining to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ATY’s future growth? Take a look at our free research report of analyst consensus for ATY’s outlook.
- Valuation: What is ATY 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 ATY 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 email@example.com.