While small-cap stocks, such as General Moly Inc (AMEX:GMO) with its market cap of US$54.48M, 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 GMO is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into GMO here.

Does GMO generate an acceptable amount of cash through operations?

Over the past year, GMO has maintained its debt levels at around US$7.09M comprising of short- and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$6.79M for investing 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of GMO’s operating efficiency ratios such as ROA here.

Can GMO pay its short-term liabilities?

At the current liabilities level of US$1.10M liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$6.79M, leading to a 6.16x current account ratio. However, anything above 3x is considered high and could mean that GMO has too much idle capital in low-earning investments.

Can GMO service its debt comfortably?

With a debt-to-equity ratio of 2.53%, GMO’s debt level is relatively low. GMO is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is extremely low for GMO, and the company also has the ability and headroom to increase debt if needed going forward.

Next Steps:

Although GMO’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 exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for GMO’s financial health. Other important fundamentals need to be considered alongside. You should continue to research General Moly to get a better picture of the stock by looking at:

• 1. Historical Performance: What has GMO’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.