Vertex Resource Group Ltd (TSXV:VTX): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Vertex Resource Group Ltd (TSXV:VTX), with a market cap of CAD CA$43.26M. However, an important fact which most ignore is: how financially healthy is the business? Since VTX is loss-making right now, it’s essential to understand 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, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into VTX here.
Does VTX generate an acceptable amount of cash through operations?
VTX’s debt levels have fallen from CA$66M to CA$58M over the last 12 months , which comprises of short- and long-term debt. With this debt payback, VTX’s cash and short-term investments stands at CA$0M for investing into the business. Additionally, VTX has generated cash from operations of CA$8M in the last twelve months, resulting in an operating cash to total debt ratio of 0.13x, meaning that VTX’s debt is not appropriately covered by operating cash. 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 a positive net income. In VTX’s case, it is able to generate 0.13x cash from its debt capital.
Can VTX meet its short-term obligations with the cash in hand?
With current liabilities at CA$69M liabilities, it seems that the business is not able to meet these obligations given the level of current assets of CA$30M, with a current ratio of 0.44x below the prudent level of 3x.
Is VTX’s level of debt at an acceptable level?
With a total debt exceeding equities, VTX is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since VTX 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:
Are you a shareholder? VTX’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, its high liquidity means the company should continue to operate smoothly in the case of adverse events. Given that its financial position may change. You should always be researching market expectations for VTX’s future growth on our free analysis platform.
Are you a potential investor? With a high level of debt on its balance sheet, VTX could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for VTX to increase its operational efficiency. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. As a following step, you should take a look at VTX’s past performance analysis on our free platform to conclude on VTX’s financial health.
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.
