Fortuna Silver Mines Inc (TSE:FVI): Time For A Financial Health Check
Fortuna Silver Mines Inc (TSX:FVI) is a small-cap stock with a market capitalization of CA$1.06B. 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? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into FVI here.
Does FVI generate enough cash through operations?
FVI has shrunken its total debt levels in the last twelve months, from US$43.06M to US$40.78M – this includes both the current and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$213.27M for investing into the business. On top of this, FVI has produced cash from operations of US$70.20M in the last twelve months, resulting in an operating cash to total debt ratio of 172.16%, signalling that FVI’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In FVI’s case, it is able to generate 1.72x cash from its debt capital.
Can FVI pay its short-term liabilities?
Looking at FVI’s most recent US$60.60M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.5x. However, anything above 3x is considered high and could mean that FVI has too much idle capital in low-earning investments.
Does FVI face the risk of succumbing to its debt-load?
FVI’s level of debt is low relative to its total equity, at 7.23%. FVI is not taking on too much debt commitment, which may be constraining for future growth.
Next Steps:
FVI 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 FVI’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Fortuna Silver Mines to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for FVI’s future growth? Take a look at our free research report of analyst consensus for FVI’s outlook.
2. Valuation: What is FVI 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 FVI is currently mispriced by the market.
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.
