Are Elcora Advanced Materials Corp’s (CVE:ERA) Interest Costs Too High?
Elcora Advanced Materials Corp (TSXV:ERA) is a small-cap stock with a market capitalization of CA$22.51M. 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? Given that ERA is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into ERA here.
Does ERA generate an acceptable amount of cash through operations?
ERA has increased its debt level by about CA$210.83K over the last 12 months – this includes both the current and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at CA$1.40M , ready to deploy 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of ERA’s operating efficiency ratios such as ROA here.
Can ERA meet its short-term obligations with the cash in hand?
Looking at ERA’s most recent CA$474.40K liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.35x. However, a ratio greater than 3x may be considered as too high, as ERA could be holding too much capital in a low-return investment environment.
Does ERA face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 4.43%, ERA’s debt level is relatively low. ERA is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is extremely low for ERA, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
ERA’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for ERA’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Elcora Advanced Materials to get a better picture of the stock by looking at:
Historical Performance: What has ERA’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.
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.
