While small-cap stocks, such as K92 Mining Inc (CVE:KNT) with its market cap of CA$167m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I recommend you dig deeper yourself into KNT here.
How much cash does KNT generate through its operations?
KNT has shrunken its total debt levels in the last twelve months, from US$7m to US$7m , which comprises of short- and long-term debt. With this debt repayment, KNT’s cash and short-term investments stands at US$5m for investing into the business. Moreover, KNT has generated US$3m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 46%, signalling that KNT’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In KNT’s case, it is able to generate 0.46x cash from its debt capital.
Does KNT’s liquid assets cover its short-term commitments?
At the current liabilities level of US$12m liabilities, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$12m, leading to a current ratio of 0.98x.
Is KNT’s debt level acceptable?
KNT’s level of debt is appropriate relative to its total equity, at 18%. KNT is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether KNT is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In KNT’s, case, the ratio of 37x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
KNT’s high cash coverage and conservative debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But it is still important for shareholders to understand why the company isn’t increasing its cheaper cost of capital to fund future growth, especially if meeting short-term obligations could also bring about issues. Keep in mind I haven’t considered other factors such as how KNT has been performing in the past. I suggest you continue to research K92 Mining to get a better picture of the stock by looking at:
- Valuation: What is KNT 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 KNT is currently mispriced by the market.
- Historical Performance: What has KNT’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.