Continental Gold Inc (TSE:CNL) is a small-cap stock with a market capitalization of CA$495.6m. 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? Given that CNL is not presently profitable, it’s essential to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I recommend you dig deeper yourself into CNL here.
Does CNL produce enough cash relative to debt?
CNL’s debt levels surged from US$45.1m to US$120.1m over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$58.4m 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of CNL’s operating efficiency ratios such as ROA here.
Can CNL pay its short-term liabilities?
With current liabilities at US$23.3m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.74x. Generally, for Metals and Mining companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can CNL service its debt comfortably?
With a debt-to-equity ratio of 32.8%, CNL’s debt level may be seen as prudent. CNL is not taking on too much debt commitment, which may be constraining for future growth. CNL’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
CNL’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure CNL has company-specific issues impacting its capital structure decisions. I recommend you continue to research Continental Gold to get a more holistic view of the stock by looking at:
- Historical Performance: What has CNL’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 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.
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