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Bisichi Mining Plc (LON:BISI) is a small-cap stock with a market capitalization of UK£10.4m. 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? Oil and Gas companies, even ones that are profitable, 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. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into BISI here.
How much cash does BISI generate through its operations?
BISI’s debt levels surged from UK£6.9m to UK£7.9m over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, BISI’s cash and short-term investments stands at UK£7.6m , ready to deploy into the business. On top of this, BISI has generated cash from operations of UK£5.3m in the last twelve months, resulting in an operating cash to total debt ratio of 67.7%, indicating that BISI’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BISI’s case, it is able to generate 0.68x cash from its debt capital.
Can BISI meet its short-term obligations with the cash in hand?
With current liabilities at UK£9.7m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.68x. Usually, for Oil and Gas companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can BISI service its debt comfortably?
BISI is a relatively highly levered company with a debt-to-equity of 40.8%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether BISI is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BISI’s, case, the ratio of 17.19x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving BISI ample headroom to grow its debt facilities.
Next Steps:
Although BISI’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how BISI has been performing in the past. I suggest you continue to research Bisichi Mining to get a better picture of the small-cap by looking at: