While small-cap stocks, such as Bassari Resources Limited (ASX:BSR) with its market cap of AU$30.17M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that BSR is not presently profitable, it’s vital to evaluate 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, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into BSR here.
How does BSR’s operating cash flow stack up against its debt?
BSR has sustained its debt level by about AU$675.00K over the last 12 months , which is mainly comprised of near term debt. At this constant level of debt, BSR currently has AU$1.04M remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of BSR’s operating efficiency ratios such as ROA here.
Does BSR’s liquid assets cover its short-term commitments?
At the current liabilities level of AU$2.50M liabilities, it seems that the business has not been able to meet these commitments with a current assets level of AU$1.10M, leading to a 0.44x current account ratio. which is under the appropriate industry ratio of 3x.
Is BSR’s debt level acceptable?
BSR’s level of debt is low relative to its total equity, at 1.42%. This range is considered safe as BSR is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is virtually non-existent with BSR, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Although BSR’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating 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 BSR has been performing in the past. I recommend you continue to research Bassari Resources to get a better picture of the stock by looking at:
- 1. Historical Performance: What has BSR’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.
- 2. 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.