Is King Island Scheelite Limited (ASX:KIS) A Financially Sound Company?
While small-cap stocks, such as King Island Scheelite Limited (ASX:KIS) with its market cap of A$8.38M, 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 KIS is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into KIS here.
Does KIS generate enough cash through operations?
KIS has shrunken its total debt levels in the last twelve months, from A$1.0M to A$0.2M . With this debt payback, KIS’s cash and short-term investments stands at A$1.5M , ready to deploy into the business. Though 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 KIS’s operating efficiency ratios such as ROA here.
Can KIS meet its short-term obligations with the cash in hand?
Looking at KIS’s most recent A$0.4M liabilities, it seems that the business has been able to meet these commitments with a current assets level of A$1.7M, leading to a 3.93x current account ratio. Though, anything about 3x may be excessive, since KIS may be leaving too much capital in low-earning investments.
Does KIS face the risk of succumbing to its debt-load?
KIS’s level of debt is appropriate relative to its total equity, at 10.00%. KIS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. KIS’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.
Next Steps:
Are you a shareholder? KIS’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that its financial position may change. You should always be researching market expectations for KIS’s future growth on our free analysis platform.
Are you a potential investor? KIS’s low-debt position gives it headroom for future growth funding in the future. Furthermore, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. To gain more conviction in the stock, you need to further examine the company’s track record. As a following step, you should take a look at KIS’s past performance analysis on our free platform to conclude on KIS’s financial health.
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.
