Nzuri Copper Limited (ASX:NZC) is a small-cap stock with a market capitalization of AU$98m. 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? Given that NZC is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into NZC here.
How much cash does NZC generate through its operations?
Over the past year, NZC has ramped up its debt from AU$2m to AU$5m , which comprises of short- and long-term debt. With this rise in debt, NZC currently has AU$9m remaining in cash and short-term investments for investing 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of NZC’s operating efficiency ratios such as ROA here.
Can NZC meet its short-term obligations with the cash in hand?
Looking at NZC’s most recent AU$5m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.09x. Generally, for Metals and Mining companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does NZC face the risk of succumbing to its debt-load?
With debt at 13% of equity, NZC may be thought of as appropriately levered. This range is considered safe as NZC is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for NZC, and the company also has the ability and headroom to increase debt if needed going forward.
NZC’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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure NZC has company-specific issues impacting its capital structure decisions. I suggest you continue to research Nzuri Copper to get a more holistic view of the stock by looking at:
- Historical Performance: What has NZC’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.
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