Is Citigold Corporation Limited’s (ASX:CTO) Balance Sheet A Threat To Its Future?
Investors are always looking for growth in small-cap stocks like Citigold Corporation Limited (ASX:CTO), with a market cap of AU$13.39M. However, an important fact which most ignore is: how financially healthy is the business? Since CTO is loss-making right now, it’s crucial to understand 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, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into CTO here.
Does CTO generate an acceptable amount of cash through operations?
Over the past year, CTO has ramped up its debt from AU$10.90M to AU$14.81M . With this increase in debt, CTO currently has AU$246.89K remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of CTO’s operating efficiency ratios such as ROA here.
Can CTO meet its short-term obligations with the cash in hand?
At the current liabilities level of AU$25.06M liabilities, the company has not been able to meet these commitments with a current assets level of AU$776.16K, leading to a 0.031x current account ratio. which is under the appropriate industry ratio of 3x.
Can CTO service its debt comfortably?
With a debt-to-equity ratio of 17.07%, CTO’s debt level may be seen as prudent. This range is considered safe as CTO is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for CTO, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Although CTO’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how CTO has been performing in the past. I recommend you continue to research Citigold to get a better picture of the stock by looking at:
1. Historical Performance: What has CTO’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.
2. 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.
