Is Golden Queen Mining Co Ltd’s (TSE:GQM) Balance Sheet A Threat To Its Future?
Golden Queen Mining Co Ltd (TSE:GQM) is a small-cap stock with a market capitalization of CA$48m. 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 GQM is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into GQM here.
How does GQM’s operating cash flow stack up against its debt?
Over the past year, GQM has maintained its debt levels at around US$41m comprising of short- and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$11m , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of GQM’s operating efficiency ratios such as ROA here.
Can GQM meet its short-term obligations with the cash in hand?
At the current liabilities level of US$38m liabilities, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.74x.
Can GQM service its debt comfortably?
With debt at 36% of equity, GQM may be thought of as appropriately levered. GQM is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for GQM, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
GQM’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure GQM has company-specific issues impacting its capital structure decisions. You should continue to research Golden Queen Mining to get a better picture of the stock by looking at:
Historical Performance: What has GQM’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 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 editorial-team@simplywallst.com.
