Fortune Minerals Limited (TSE:FT) is a small-cap stock with a market capitalization of CA$37.2m. 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? Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into FT here.
How much cash does FT generate through its operations?
Over the past year, FT has ramped up its debt from CA$5.9m to CA$6.9m , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at CA$5.5m for investing 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 assess some of FT’s operating efficiency ratios such as ROA here.
Does FT’s liquid assets cover its short-term commitments?
At the current liabilities level of CA$341.5k liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 16.77x. Though, anything about 3x may be excessive, since FT may be leaving too much capital in low-earning investments.
Does FT face the risk of succumbing to its debt-load?
FT’s level of debt is appropriate relative to its total equity, at 10.4%. This range is considered safe as FT is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
FT’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. I admit this is a fairly basic analysis for FT’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Fortune Minerals to get a more holistic view of the stock by looking at:
- Historical Performance: What has FT’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 email@example.com.