While small-cap stocks, such as Coppermoly Limited (ASX:COY) with its market cap of AU$16.53M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since COY is loss-making right now, it’s vital to assess 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 COY here.

Does COY generate enough cash through operations?

Over the past year, COY has ramped up its debt from AU$1.29M to AU$1.39M made up of predominantly near term debt. With this rise in debt, COY currently has AU$554.63K remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of COY’s operating efficiency ratios such as ROA here.

Can COY meet its short-term obligations with the cash in hand?

With current liabilities at AU$1.82M, the company has not been able to meet these commitments with a current assets level of AU$583.88K, leading to a 0.32x current account ratio. which is under the appropriate industry ratio of 3x.

Can COY service its debt comfortably?

With a debt-to-equity ratio of 13.26%, COY’s debt level may be seen as prudent. This range is considered safe as COY 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 COY, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

COY’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Furthermore, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure COY has company-specific issues impacting its capital structure decisions. You should continue to research Coppermoly to get a more holistic view of the stock by looking at:

• 1. Historical Performance: What has COY’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.

• 2. 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 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.