How Financially Strong Is Central Iron Ore Limited (CVE:CIO)?
Central Iron Ore Limited (CVE:CIO) is a small-cap stock with a market capitalization of CA$1.8m. 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? Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into CIO here.
How much cash does CIO generate through its operations?
CIO has built up its total debt levels in the last twelve months, from AU$408.2k to AU$641.0k made up of predominantly near term debt. With this growth in debt, the current cash and short-term investment levels stands at AU$579.2k , ready to deploy into the business. Additionally, CIO has produced cash from operations of AU$575.2k over the same time period, resulting in an operating cash to total debt ratio of 89.7%, indicating that CIO’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CIO’s case, it is able to generate 0.9x cash from its debt capital.
Does CIO’s liquid assets cover its short-term commitments?
Looking at CIO’s most recent AU$1.1m liabilities, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.78x, which is below the prudent industry ratio of 3x.
Is CIO’s debt level acceptable?
With debt at 20.2% of equity, CIO may be thought of as appropriately levered. This range is considered safe as CIO is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
Next Steps:
CIO has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how CIO has been performing in the past. I recommend you continue to research Central Iron Ore to get a better picture of the stock by looking at:
Historical Performance: What has CIO’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.
