How Financially Strong Is Atrum Coal Limited (ASX:ATU)?
Investors are always looking for growth in small-cap stocks like Atrum Coal Limited (ASX:ATU), with a market cap of AU$33m. However, an important fact which most ignore is: how financially healthy is the business? Since ATU is loss-making right now, it’s essential 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. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into ATU here.
How much cash does ATU generate through its operations?
Over the past year, ATU has reduced its debt from AU$5m to AU$2m , which is made up of current and long term debt. With this debt payback, ATU currently has AU$2m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 assess some of ATU’s operating efficiency ratios such as ROA here.
Can ATU pay its short-term liabilities?
At the current liabilities level of AU$2m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of AU$4m, with a current ratio of 1.74x. Generally, for Metals and Mining companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is ATU’s debt level acceptable?
With debt at 32% of equity, ATU may be thought of as appropriately levered. This range is considered safe as ATU is not taking on too much debt obligation, which may be constraining for future growth. ATU’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
Although ATU’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. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how ATU has been performing in the past. I recommend you continue to research Atrum Coal to get a more holistic view of the stock by looking at:
Historical Performance: What has ATU’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 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 editorial-team@simplywallst.com.
