Investors are always looking for growth in small-cap stocks like Kelt Exploration Ltd (TSE:KEL), with a market cap of CA$1.77b. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Oil and Gas industry, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into KEL here.
Does KEL produce enough cash relative to debt?
KEL has built up its total debt levels in the last twelve months, from CA$111.07m to CA$198.20m , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at CA$3.48m for investing into the business. On top of this, KEL has generated CA$143.00m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 72.15%, signalling that KEL’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In KEL’s case, it is able to generate 0.72x cash from its debt capital.
Does KEL’s liquid assets cover its short-term commitments?
With current liabilities at CA$98.57m, it seems that the business is not able to meet these obligations given the level of current assets of CA$47.74m, with a current ratio of 0.48x below the prudent level of 3x.
Does KEL face the risk of succumbing to its debt-load?
KEL’s level of debt is appropriate relative to its total equity, at 23.13%. KEL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for KEL, and the company also has the ability and headroom to increase debt if needed going forward.
KEL has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Though its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure KEL has company-specific issues impacting its capital structure decisions. You should continue to research Kelt Exploration to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KEL’s future growth? Take a look at our free research report of analyst consensus for KEL’s outlook.
- Valuation: What is KEL 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 KEL 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 firstname.lastname@example.org.