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Ascent Resources plc (AIM:AST) is a small-cap stock with a market capitalization of UK£22.69M. 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? Companies operating in the Oil and Gas industry, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes crucial. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into AST here.
Does AST generate an acceptable amount of cash through operations?
AST has shrunken its total debt levels in the last twelve months, from UK£11.24M to UK£6.16M , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at UK£3.15M for investing 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 examine some of AST’s operating efficiency ratios such as ROA here.
Does AST’s liquid assets cover its short-term commitments?
Looking at AST’s most recent UK£254.00K liabilities, it appears that the company has been able to meet these commitments with a current assets level of UK£3.19M, leading to a 12.54x current account ratio. However, anything above 3x is considered high and could mean that AST has too much idle capital in low-earning investments.
Can AST service its debt comfortably?
With a debt-to-equity ratio of 5.96%, AST’s debt level is relatively low. This range is considered safe as AST is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is extremely low for AST, and the company also has the ability and headroom to increase debt if needed going forward.
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Although AST’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how AST has been performing in the past. I recommend you continue to research Ascent Resources to get a more holistic view of the stock by looking at: