While small-cap stocks, such as Vango Mining Limited (ASX:VAN) with its market cap of AU$74.22M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that VAN is not presently profitable, it’s crucial to understand 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, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into VAN here.
Does VAN generate an acceptable amount of cash through operations?
VAN has built up its total debt levels in the last twelve months, from AU$2.77M to AU$5.14M – this includes both the current and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at AU$204.60K , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 assess some of VAN’s operating efficiency ratios such as ROA here.
Does VAN’s liquid assets cover its short-term commitments?
With current liabilities at AU$7.94M, the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.066x, which is below the prudent industry ratio of 3x.
Does VAN face the risk of succumbing to its debt-load?
VAN is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since VAN is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
VAN’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for VAN’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Vango Mining to get a better picture of the stock by looking at: