Investors are always looking for growth in small-cap stocks like Bathurst Resources Limited (ASX:BRL), with a market cap of AU$226.97M. However, an important fact which most ignore is: how financially healthy is the business? Since BRL is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into BRL here.
How does BRL’s operating cash flow stack up against its debt?
BRL’s debt levels surged from NZ$5.14M to NZ$37.55M over the last 12 months – this includes both the current and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at NZ$28.91M for investing into the business. On top of this, BRL has produced cash from operations of NZ$8.86M during the same period of time, leading to an operating cash to total debt ratio of 23.60%, signalling that BRL’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires positive earnings. In BRL’s case, it is able to generate 0.24x cash from its debt capital.
Can BRL meet its short-term obligations with the cash in hand?
Looking at BRL’s most recent NZ$33.33M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.17x. Usually, for Metals and Mining companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does BRL face the risk of succumbing to its debt-load?
BRL is a relatively highly levered company with a debt-to-equity of 55.14%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since BRL is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
At its current level of cash flow coverage, BRL has room for improvement to better cushion for events which may require debt repayment. However, 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 BRL’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Bathurst Resources to get a more holistic view of the stock by looking at:
- Historical Performance: What has BRL’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.
To help readers see pass 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.