Investors are always looking for growth in small-cap stocks like Revelo Resources Corp (CVE:RVL), with a market cap of CA$1.7m. However, an important fact which most ignore is: how financially healthy is the business? Since RVL is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I recommend you dig deeper yourself into RVL here.
How much cash does RVL generate through its operations?
Over the past year, RVL has borrowed debt capital of around CA$2.3m comprising of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at CA$501.8k for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of RVL’s operating efficiency ratios such as ROA here.
Can RVL pay its short-term liabilities?
With current liabilities at CA$2.9m, the company has not been able to meet these commitments with a current assets level of CA$1.7m, leading to a 0.58x current account ratio. which is under the appropriate industry ratio of 3x.
Does RVL face the risk of succumbing to its debt-load?
With total debt exceeding equities, RVL is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since RVL is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
RVL’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure RVL has company-specific issues impacting its capital structure decisions. I suggest you continue to research Revelo Resources to get a better picture of the stock by looking at:
- Historical Performance: What has RVL’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.
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