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While small-cap stocks, such as Boss Resources Limited (ASX:BOE) with its market cap of AU$112m, 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 BOE is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into BOE here.
How much cash does BOE generate through its operations?
Over the past year, BOE has reduced its debt from AU$7m to AU$4m , which is made up of current and long term debt. With this debt payback, BOE currently has AU$7m 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. 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 BOE’s operating efficiency ratios such as ROA here.
Can BOE pay its short-term liabilities?
At the current liabilities level of AU$521k liabilities, it appears that the company has been able to meet these obligations given the level of current assets of AU$7m, with a current ratio of 13.74x. Having said that, a ratio greater than 3x may be considered as quite high, and some might argue BOE could be holding too much capital in a low-return investment environment.
Can BOE service its debt comfortably?
BOE’s level of debt is appropriate relative to its total equity, at 24%. BOE is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for BOE, and the company also has the ability and headroom to increase debt if needed going forward.
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BOE’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. Keep in mind I haven’t considered other factors such as how BOE has been performing in the past. I suggest you continue to research Boss Resources to get a better picture of the stock by looking at:
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Historical Performance: What has BOE’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.