While small-cap stocks, such as Bassari Resources Limited (ASX:BSR) with its market cap of A$30.01M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since BSR is loss-making right now, 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, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into BSR here.
Does BSR generate an acceptable amount of cash through operations?
BSR has sustained its debt level by about A$0.7M over the last 12 months . At this stable level of debt, BSR currently has A$1.0M remaining in cash and short-term investments , ready to deploy 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. For this article’s sake, I won’t be looking at this today, but you can examine some of BSR’s operating efficiency ratios such as ROA here.
Can BSR pay its short-term liabilities?
Looking at BSR’s most recent A$2.5M liabilities, it seems that the business is not able to meet these obligations given the level of current assets of A$1.1M, with a current ratio of 0.44x below the prudent level of 3x.
Does BSR face the risk of succumbing to its debt-load?
With debt at 1.42% of equity, BSR may be thought of as having low leverage. This range is considered safe as BSR is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. BSR’s risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
Are you a shareholder? BSR’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. Furthermore, the company may struggle to meet its near term liabilities should an adverse event occur. Given that its financial position may change. I suggest researching market expectations for BSR’s future growth on our free analysis platform.
Are you a potential investor? BSR seems to have maintained a sensible level of debt, which means there’s still some headroom to grow debt funding. But its current cash flow coverage of existing debt, in addition to the low liquidity, is concerning. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of BSR’s track record. As a following step, you should take a look at BSR’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.