While small-cap stocks, such as Queensland Bauxite Limited (ASX:QBL) with its market cap of A$87.89M, 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 QBL is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into QBL here.

Does QBL generate enough cash through operations?

QBL has built up its total debt levels in the last twelve months, from A$0.2M to A$1.8M , which is mainly comprised of near term debt. With this rise in debt, QBL’s cash and short-term investments stands at A$8.6M for investing 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 QBL’s operating efficiency ratios such as ROA here.

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

At the current liabilities level of A$2.6M liabilities, it seems that the business has been able to meet these commitments with a current assets level of A$8.7M, leading to a 3.34x current account ratio. However, anything about 3x may be excessive, since QBL may be leaving too much capital in low-earning investments.

Is QBL’s debt level acceptable?

QBL’s level of debt is appropriate relative to its total equity, at 15.79%. QBL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with QBL, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

QBL’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. This is only a rough assessment of financial health, and I’m sure QBL has company-specific issues impacting its capital structure decisions. I suggest you continue to research Queensland Bauxite to get a more holistic view of the stock by looking at:

• 1. Historical Performance: What has QBL’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.