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What does Condor Petroleum Inc’s (TSE:CPI) Balance Sheet Tell Us About Its Future?

Condor Petroleum Inc (TSE:CPI) is a small-cap stock with a market capitalization of CA$10m. 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? Companies operating in the Oil and Gas industry, especially ones that are currently loss-making, are more likely to be higher risk. So, understanding the company’s financial health becomes crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into CPI here.

Does CPI produce enough cash relative to debt?

Over the past year, CPI has reduced its debt from CA$13m to CA$9m – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at CA$869k , ready to deploy into the business. Moreover, CPI has produced cash from operations of CA$284k during the same period of time, resulting in an operating cash to total debt ratio of 3.2%, signalling that CPI’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires a positive net income. In CPI’s case, it is able to generate 0.032x cash from its debt capital.

Can CPI meet its short-term obligations with the cash in hand?

At the current liabilities level of CA$11m liabilities, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.67x.

TSX:CPI Historical Debt October 12th 18

Can CPI service its debt comfortably?

With a debt-to-equity ratio of 20%, CPI’s debt level may be seen as prudent. CPI is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with CPI, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

CPI’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how CPI has been performing in the past. I recommend you continue to research Condor Petroleum to get a better picture of the stock by looking at:

  1. Historical Performance: What has CPI’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 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 editorial-team@simplywallst.com.