What You Must Know About Nevada Copper Corp’s (TSE:NCU) Financial Strength
Nevada Copper Corp (TSX:NCU) is a small-cap stock with a market capitalization of CA$130.23M. 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 NCU is loss-making right now, it’s vital 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, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into NCU here.
Does NCU generate enough cash through operations?
Over the past year, NCU has ramped up its debt from US$117.19M to US$152.27M , which is made up of current and long term debt. With this increase in debt, NCU’s cash and short-term investments stands at US$4.80M , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of NCU’s operating efficiency ratios such as ROA here.
Does NCU’s liquid assets cover its short-term commitments?
At the current liabilities level of US$2.51M liabilities, the company has been able to meet these commitments with a current assets level of US$4.94M, leading to a 1.97x current account ratio. Generally, for Metals and Mining companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can NCU service its debt comfortably?
NCU is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since NCU is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
NCU’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how NCU has been performing in the past. You should continue to research Nevada Copper to get a better picture of the stock by looking at:
1. Historical Performance: What has NCU’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.
