While small-cap stocks, such as Oryx Petroleum Corporation Limited (TSE:OXC) with its market cap of CA$107m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Oil and Gas industry, in particular ones that run negative earnings, tend to be high risk. So, understanding the company’s financial health becomes crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I recommend you dig deeper yourself into OXC here.
How much cash does OXC generate through its operations?
OXC has built up its total debt levels in the last twelve months, from US$75m to US$80m , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$22m for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 OXC’s operating efficiency ratios such as ROA here.
Can OXC meet its short-term obligations with the cash in hand?
At the current liabilities level of US$42m liabilities, the company has been able to meet these obligations given the level of current assets of US$59m, with a current ratio of 1.41x. Generally, for Oil and Gas companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is OXC’s debt level acceptable?
OXC’s level of debt is appropriate relative to its total equity, at 15%. This range is considered safe as OXC is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for OXC, and the company also has the ability and headroom to increase debt if needed going forward.
OXC’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for OXC’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Oryx Petroleum to get a more holistic view of the stock by looking at:
- Historical Performance: What has OXC’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 firstname.lastname@example.org.