How Financially Strong Is Audalia Resources Limited (ASX:ACP)?
Audalia Resources Limited (ASX:ACP) is a small-cap stock with a market capitalization of AU$5.38M. 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? Since ACP is loss-making right now, it’s essential to evaluate 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, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into ACP here.
Does ACP generate an acceptable amount of cash through operations?
ACP’s debt level has been constant at around AU$3.63M over the previous year made up of current and long term debt. At this stable level of debt, ACP’s cash and short-term investments stands at AU$1.49M 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 take a look at some of ACP’s operating efficiency ratios such as ROA here.
Can ACP pay its short-term liabilities?
At the current liabilities level of AU$733.92K liabilities, the company has been able to meet these commitments with a current assets level of AU$1.58M, leading to a 2.16x current account ratio. Usually, for Metals and Mining companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does ACP face the risk of succumbing to its debt-load?
With total debt exceeding equities, ACP 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. But since ACP is currently 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.
Next Steps:
ACP’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, 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 ACP has been performing in the past. I suggest you continue to research Audalia Resources to get a more holistic view of the stock by looking at:
1. Historical Performance: What has ACP’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.
