Sabre Resources Limited (ASX:SBR) is a small-cap stock with a market capitalization of AU$4.02M. 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 SBR is not presently profitable, it’s crucial to assess 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, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into SBR here.
Does SBR generate enough cash through operations?
SBR has increased its debt level by about AU$450.00K over the last 12 months comprising of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at AU$77.64K for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of SBR’s operating efficiency ratios such as ROA here.
Can SBR meet its short-term obligations with the cash in hand?
With current liabilities at AU$104.35K, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.21x. Generally, for Metals and Mining companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can SBR service its debt comfortably?
With debt at 2.60% of equity, SBR may be thought of as having low leverage. This range is considered safe as SBR is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is virtually non-existent with SBR, and the company has plenty of headroom and ability to raise debt should it need to in the future.
SBR’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how SBR has been performing in the past. I recommend you continue to research Sabre Resources to get a more holistic view of the stock by looking at:
- 1. Historical Performance: What has SBR’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.