Investors are always looking for growth in small-cap stocks like NovaGold Resources Inc (TSE:NG), with a market cap of CA$1.50b. However, an important fact which most ignore is: how financially healthy is the business? Given that NG is not presently profitable, it’s essential 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. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into NG here.
Does NG produce enough cash relative to debt?
Over the past year, NG has ramped up its debt from US$87.3m to US$93.1m , which is made up of current and long term debt. With this growth in debt, NG currently has US$70.5m 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 take a look at some of NG’s operating efficiency ratios such as ROA here.
Can NG meet its short-term obligations with the cash in hand?
With current liabilities at US$2.2m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 31.81x. Though, a ratio greater than 3x may be considered as too high, as NG could be holding too much capital in a low-return investment environment.
Can NG service its debt comfortably?
NG’s level of debt is appropriate relative to its total equity, at 34.7%. NG is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with NG, and the company has plenty of headroom and ability to raise debt should it need to in the future.
NG’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. This is only a rough assessment of financial health, and I’m sure NG has company-specific issues impacting its capital structure decisions. You should continue to research NovaGold Resources to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NG’s future growth? Take a look at our free research report of analyst consensus for NG’s outlook.
- Historical Performance: What has NG’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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