Orvana Minerals Corp. (TSE:ORV) is a small-cap stock with a market capitalization of CA$19m. 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 ORV is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into ORV here.
Does ORV produce enough cash relative to debt?
ORV’s debt levels surged from US$18m to US$22m over the last 12 months , which accounts for long term debt. With this growth in debt, ORV’s cash and short-term investments stands at US$12m , ready to deploy into the business. Additionally, ORV has generated cash from operations of US$1.8m during the same period of time, resulting in an operating cash to total debt ratio of 8.2%, signalling that ORV’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In ORV’s case, it is able to generate 0.082x cash from its debt capital.
Can ORV pay its short-term liabilities?
At the current liabilities level of US$49m, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.8x.
Is ORV’s debt level acceptable?
With debt at 28% of equity, ORV may be thought of as appropriately levered. ORV is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. ORV’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
ORV has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how ORV has been performing in the past. I recommend you continue to research Orvana Minerals to get a more holistic view of the stock by looking at:
- Historical Performance: What has ORV’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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