How Financially Strong Is Interra Resources Limited (SGX:5GI)?
While small-cap stocks, such as Interra Resources Limited (SGX:5GI) with its market cap of S$35.16M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Oil and Gas industry, even ones that are profitable, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is essential. Here are few basic financial health checks you should consider before taking the plunge. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into 5GI here.
Does 5GI generate enough cash through operations?
5GI’s debt level has been constant at around US$3.74M over the previous year made up of predominantly near term debt. At this constant level of debt, 5GI’s cash and short-term investments stands at US$11.19M for investing into the business. Additionally, 5GI has produced US$2.64M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 70.56%, indicating that 5GI’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 5GI’s case, it is able to generate 0.71x cash from its debt capital.
Can 5GI meet its short-term obligations with the cash in hand?
With current liabilities at US$27.67M, it seems that the business has been able to meet these commitments with a current assets level of US$29.64M, leading to a 1.07x current account ratio. Usually, for Oil and Gas companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is 5GI’s debt level acceptable?
With a debt-to-equity ratio of 13.78%, 5GI’s debt level may be seen as prudent. 5GI is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
Next Steps:
5GI has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, 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 5GI’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Interra Resources to get a better picture of the stock by looking at:
1. Valuation: What is 5GI worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 5GI is currently mispriced by the market.
2. Historical Performance: What has 5GI’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.
3. 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.
