Investors are always looking for growth in small-cap stocks like Samson Oil & Gas Limited (ASX:SSN), with a market cap of AU$4.92M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Oil and Gas industry, in particular ones that run negative earnings, are more likely to be higher risk. Assessing first and foremost the financial health is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into SSN here.
Does SSN generate enough cash through operations?
SSN has shrunken its total debt levels in the last twelve months, from US$34.55M to US$23.42M , which is made up of current and long term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$628.78K for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of SSN’s operating efficiency ratios such as ROA here.
Can SSN pay its short-term liabilities?
With current liabilities at US$29.14M, it seems that the business has not been able to meet these commitments with a current assets level of US$2.45M, leading to a 0.084x current account ratio. which is under the appropriate industry ratio of 3x.
Is SSN’s debt level acceptable?
Since total debt levels have outpaced equities, SSN is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since SSN is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
With a high level of debt on its balance sheet, SSN could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for SSN to increase its operational efficiency. In addition to this, 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 SSN has been performing in the past. You should continue to research Samson Oil & Gas to get a more holistic view of the stock by looking at:
- Historical Performance: What has SSN’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.