Ur-Energy Inc (TSE:URE) is a small-cap stock with a market capitalization of CA$143m. 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? Companies operating in the Oil and Gas industry, even ones that are profitable, tend to be high risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into URE here.
How much cash does URE generate through its operations?
URE’s debt levels have fallen from US$22m to US$17m over the last 12 months , which comprises of short- and long-term debt. With this debt repayment, URE currently has US$8m remaining in cash and short-term investments , ready to deploy into the business. Moreover, URE has produced cash from operations of US$1m over the same time period, resulting in an operating cash to total debt ratio of 7.6%, meaning that URE’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In URE’s case, it is able to generate 0.076x cash from its debt capital.
Can URE meet its short-term obligations with the cash in hand?
Looking at URE’s most recent US$8m liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$8m, leading to a 1.09x current account ratio. Generally, for Oil and Gas companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is URE’s debt level acceptable?
With debt at 35% of equity, URE may be thought of as appropriately levered. This range is considered safe as URE is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if URE’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 URE, the ratio of 0.15x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
URE’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. This is only a rough assessment of financial health, and I’m sure URE has company-specific issues impacting its capital structure decisions. I recommend you continue to research Ur-Energy to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for URE’s future growth? Take a look at our free research report of analyst consensus for URE’s outlook.
- Valuation: What is URE 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 URE 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 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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