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Fortuna Silver Mines Inc. (TSE:FVI) is a small-cap stock with a market capitalization of CA$694m. 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? Understanding the company's financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, this is not a comprehensive overview, so I recommend you dig deeper yourself into FVI here.
Does FVI Produce Much Cash Relative To Its Debt?
FVI's debt levels surged from US$41m to US$78m over the last 12 months , which includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$163m to keep the business going. On top of this, FVI has produced cash from operations of US$83m over the same time period, resulting in an operating cash to total debt ratio of 107%, meaning that FVI’s operating cash is sufficient to cover its debt.
Can FVI pay its short-term liabilities?
With current liabilities at US$61m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.57x. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Does FVI face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 13%, FVI's debt level may be seen as prudent. FVI is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
FVI has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I'm sure FVI has company-specific issues impacting its capital structure decisions. I suggest you continue to research Fortuna Silver Mines to get a more holistic view of the stock by looking at:
- 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.
- 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.
- 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.