Investors are always looking for growth in small-cap stocks like Elementos Limited (ASX:ELT), with a market cap of A$11.46M. However, an important fact which most ignore is: how financially healthy is the business? Since ELT is loss-making right now, it’s vital 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. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into ELT here.
How does ELT’s operating cash flow stack up against its debt?
Over the past year, ELT has ramped up its debt from A$0.5M to A$0.5M , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at A$0.7M , 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 ELT’s operating efficiency ratios such as ROA here.
Can ELT pay its short-term liabilities?
With current liabilities at A$0.6M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of A$0.7M, with a current ratio of 1.07x. Generally, for metals and mining companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can ELT service its debt comfortably?
With debt at 11.38% of equity, ELT may be thought of as appropriately levered. This range is considered safe as ELT 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 ELT, 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? ELT’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. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that its financial position may change. You should always be keeping on top of market expectations for ELT’s future growth on our free analysis platform.
Are you a potential investor? ELT’s low-debt position gives it headroom for future growth funding in the future. Furthermore, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. To gain more confidence in the stock, you need to further examine the company’s track record. You should continue your analysis by taking a look at ELT’s past performance analysis on our free platform to conclude on ELT’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.