Tasman Resources Ltd (ASX:TAS) is a small-cap stock with a market capitalization of A$32.89M. 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? Given that TAS is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into TAS here.
Does TAS generate enough cash through operations?
TAS has increased its debt level by about A$1.4M over the last 12 months – this includes both the current and long-term debt. With this increase in debt, TAS’s cash and short-term investments stands at A$8.9M for investing into the business. However, 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of TAS’s operating efficiency ratios such as ROA here.
Can TAS pay its short-term liabilities?
At the current liabilities level of A$2.4M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of A$9.8M, with a current ratio of 4.02x. Though, anything above 3x is considered high and could mean that TAS has too much idle capital in low-earning investments.
Does TAS face the risk of succumbing to its debt-load?
With debt at 3.70% of equity, TAS may be thought of as having low leverage. This range is considered safe as TAS is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is extremely low for TAS, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Are you a shareholder? TAS’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. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may change. You should always be researching market expectations for TAS’s future growth on our free analysis platform.