OceanaGold Corporation (TSX:OGC) is a small-cap stock with a market capitalization of CA$2.09B. 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? So, understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into OGC here.
Does OGC generate enough cash through operations?
OGC has shrunken its total debt levels in the last twelve months, from US$324.44M to US$240.39M , which is made up of current and long term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$73.24M , ready to deploy into the business. On top of this, OGC has generated cash from operations of US$357.65M in the last twelve months, resulting in an operating cash to total debt ratio of 148.78%, indicating that OGC’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In OGC’s case, it is able to generate 1.49x cash from its debt capital.
Does OGC’s liquid assets cover its short-term commitments?
Looking at OGC’s most recent US$225.28M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1x. For Metals and Mining companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does OGC face the risk of succumbing to its debt-load?
OGC’s level of debt is appropriate relative to its total equity, at 15.43%. This range is considered safe as OGC is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if OGC’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For OGC, the ratio of 12.99x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
OGC’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how OGC has been performing in the past. I suggest you continue to research OceanaGold to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for OGC’s future growth? Take a look at our free research report of analyst consensus for OGC’s outlook.
- Valuation: What is OGC worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether OGC is currently mispriced by the market.
- 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.