Does QMX Gold Corporation’s (TSXV:QMX) Debt Level Pose A Serious Problem?
Investors are always looking for growth in small-cap stocks like QMX Gold Corporation (TSXV:QMX), with a market cap of CAD CA$39.26M. However, an important fact which most ignore is: how financially healthy is the company? The significance of doing due diligence on a company’s financial strength stems from the fact that over 20,000 companies go bankrupt in every quarter in the US alone. Here are few basic financial health checks to judge whether a company fits the bill or there is an additional risk which you should consider before taking the plunge. View our latest analysis for QMX Gold
Does QMX generate enough cash through operations?
Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. These catastrophes does not mean the company can stop servicing its debt obligations. Can QMX pay off what it owes to its debtholder by using only cash from its operational activities? Last year, QMX’s operating cash flow was -2.77x its current debt. This means what QMX can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at QMX’s operations at this point in time.
Can QMX pay its short-term liabilities?
In addition to debtholders, a company must be able to pay its bills and salaries to keep the business running. During times of unfavourable events, QMX could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that QMX does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Can QMX service its debt comfortably?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. In the case of QMX, the debt-to-equity ratio is 10.85%, which means its debt level does not pose a threat to its operations right now.
Next Steps:
Are you a shareholder? Although QMX’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. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that QMX’s financial situation may change. I suggest researching market expectations for QMX’s future growth on our free analysis platform.
Are you a potential investor? QMX Gold currently has financial flexibility to ramp up growth in the future. In addition, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. To gain more confidence in the stock, you need to further analyse the company’s track record. As a following step, you should take a look at QMX’s past performance analysis on our free platform to conclude on QMX’s financial health.
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.
