Investors are always looking for growth in small-cap stocks like Crossland Strategic Metals Limited (ASX:CUX), with a market cap of A$6.07M. However, an important fact which most ignore is: how financially healthy is the business? Given that CUX is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into CUX here.
Does CUX generate an acceptable amount of cash through operations?
CUX’s debt levels surged from A$0.1M to A$1.2M over the last 12 months , which is mainly comprised of near term debt. With this rise in debt, the current cash and short-term investment levels stands at A$0.1M for investing into the business. However, 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 take a look at some of CUX’s operating efficiency ratios such as ROA here.
Can CUX meet its short-term obligations with the cash in hand?
With current liabilities at A$1.4M liabilities, it seems that the business is not able to meet these obligations given the level of current assets of A$0.1M, with a current ratio of 0.1x below the prudent level of 3x.
Can CUX service its debt comfortably?
With debt at 13.01% of equity, CUX may be thought of as appropriately levered. CUX is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with CUX, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
Are you a shareholder? Although CUX’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may change. I suggest keeping abreast of market expectations for CUX’s future growth on our free analysis platform.
Are you a potential investor? CUX appears to have maintained a sensible level of debt, meaning there’s some room to take on more debt if needed. But its current cash flow coverage of existing debt, in addition to the low liquidity, is concerning. However, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of CUX’s track record. I encourage you to continue your research by taking a look at CUX’s past performance analysis on our free platform to conclude on CUX’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.