TMAC Resources Inc. (TSE:TMR) is a small-cap stock with a market capitalization of CA$778m. 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 TMR 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, I know these factors are very high-level, so I suggest you dig deeper yourself into TMR here.
How much cash does TMR generate through its operations?
Over the past year, TMR has ramped up its debt from CA$192m to CA$202m – this includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at CA$14m for investing into the business. Moreover, TMR has generated CA$19m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 9.4%, indicating that TMR’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In TMR’s case, it is able to generate 0.094x cash from its debt capital.
Can TMR meet its short-term obligations with the cash in hand?
Looking at TMR’s CA$139m in current liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of CA$117m, with a current ratio of 0.84x.
Is TMR’s debt level acceptable?
TMR’s level of debt is appropriate relative to its total equity, at 25%. This range is considered safe as TMR is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. TMR’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.
TMR’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. 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 TMR has been performing in the past. I recommend you continue to research TMAC Resources to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TMR’s future growth? Take a look at our free research report of analyst consensus for TMR’s outlook.
- Valuation: What is TMR 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 TMR is currently mispriced by the market.
- 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 firstname.lastname@example.org.