Is Red Eagle Mining Corporation’s (TSE:R) Balance Sheet A Threat To Its Future?
Red Eagle Mining Corporation (TSX:R) is a small-cap stock with a market capitalization of CA$109.55M. 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 R is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I recommend you dig deeper yourself into R here.
Does R generate an acceptable amount of cash through operations?
R has built up its total debt levels in the last twelve months, from US$64.70M to US$72.36M , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at US$1.78M , 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of R’s operating efficiency ratios such as ROA here.
Can R pay its short-term liabilities?
With current liabilities at US$30.86M, it seems that the business is not able to meet these obligations given the level of current assets of US$12.20M, with a current ratio of 0.4x below the prudent level of 3x.
Is R’s debt level acceptable?
With a debt-to-equity ratio of 95.56%, R can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since R is currently unprofitable, sustainability of its current state of operations becomes a concern. 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:
R’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how R has been performing in the past. You should continue to research Red Eagle Mining to get a more holistic view of the stock by looking at:
1. Historical Performance: What has R’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.
2. 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.
