What does NioCorp Developments Ltd’s (TSE:NB) Balance Sheet Tell Us About Its Future?
While small-cap stocks, such as NioCorp Developments Ltd (TSX:NB) with its market cap of CA$130.33M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since NB is loss-making right now, it’s crucial 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, since I only look at basic financial figures, I recommend you dig deeper yourself into NB here.
Does NB generate an acceptable amount of cash through operations?
NB’s debt levels have fallen from US$7.47M to US$5.23M over the last 12 months – this includes both the current and long-term debt. With this debt repayment, NB’s cash and short-term investments stands at US$238.00K for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 examine some of NB’s operating efficiency ratios such as ROA here.
Can NB meet its short-term obligations with the cash in hand?
Looking at NB’s most recent US$6.48M liabilities, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.1x, which is below the prudent industry ratio of 3x.
Is NB’s debt level acceptable?
NB is a relatively highly levered company with a debt-to-equity of 77.37%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since NB is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
At its current level of cash flow coverage, NB has room for improvement to better cushion for events which may require debt repayment. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for NB’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research NioCorp Developments to get a more holistic view of the stock by looking at:
1. Historical Performance: What has NB’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.
