What You Must Know About Sirius Minerals Plc’s (LON:SXX) Financial Strength
While small-cap stocks, such as Sirius Minerals Plc (LSE:SXX) with its market cap of UK£1.33B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since SXX is loss-making right now, it’s essential to assess 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 SXX here.
Does SXX generate an acceptable amount of cash through operations?
Over the past year, SXX has reduced its debt from UK£321.37M to UK£249.33M , which is mainly comprised of near term debt. With this debt repayment, the current cash and short-term investment levels stands at UK£393.98M , 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 examine some of SXX’s operating efficiency ratios such as ROA here.
Can SXX pay its short-term liabilities?
At the current liabilities level of UK£289.04M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of UK£421.32M, with a current ratio of 1.46x. Usually, for Chemicals companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can SXX service its debt comfortably?
SXX is a relatively highly levered company with a debt-to-equity of 49.36%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since SXX is currently loss-making, 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:
SXX’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. Keep in mind I haven’t considered other factors such as how SXX has been performing in the past. I recommend you continue to research Sirius Minerals to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for SXX’s future growth? Take a look at our free research report of analyst consensus for SXX’s outlook.
2. Historical Performance: What has SXX’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.
3. 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.
