Sundance Resources Limited (ASX:SDL): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Sundance Resources Limited (ASX:SDL), with a market cap of AU$40.35M. However, an important fact which most ignore is: how financially healthy is the business? Given that SDL 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. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into SDL here.
How does SDL’s operating cash flow stack up against its debt?
SDL’s debt level has been constant at around AU$100.42M over the previous year – this includes both the current and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at AU$820.03K , ready to deploy 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 examine some of SDL’s operating efficiency ratios such as ROA here.
Can SDL pay its short-term liabilities?
At the current liabilities level of AU$1.68M liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.61x, which is below the prudent industry ratio of 3x.
Is SDL’s debt level acceptable?
SDL is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since SDL is presently unprofitable, there’s a question of sustainability of its current operations. 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:
SDL’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. 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 SDL has been performing in the past. I suggest you continue to research Sundance Resources to get a more holistic view of the stock by looking at:
Historical Performance: What has SDL’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 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.
