Curzon Energy PLC (LSE:CZN) is a small-cap stock with a market capitalization of UK£6.72M. 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? Oil and Gas companies, especially ones that are currently loss-making, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into CZN here.
How does CZN’s operating cash flow stack up against its debt?
Over the past year, CZN has borrowed debt capital of around UK£578.60K made up of predominantly near term debt. With this growth in debt, CZN currently has UK£1.60M remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of CZN’s operating efficiency ratios such as ROA here.
Does CZN’s liquid assets cover its short-term commitments?
With current liabilities at UK£1.04M, it appears that the company has been able to meet these commitments with a current assets level of UK£1.74M, leading to a 1.67x current account ratio. Usually, for Oil and Gas companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is CZN’s debt level acceptable?
With debt at 17.09% of equity, CZN may be thought of as appropriately levered. This range is considered safe as CZN is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with CZN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
CZN’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for CZN’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Curzon Energy to get a more holistic view of the stock by looking at: