Investors are always looking for growth in small-cap stocks like KIN Mining NL (ASX:KIN), with a market cap of AU$29m. However, an important fact which most ignore is: how financially healthy is the business? Since KIN is loss-making right now, it’s crucial to assess 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. However, this commentary is still very high-level, so I suggest you dig deeper yourself into KIN here.
How does KIN’s operating cash flow stack up against its debt?
Over the past year, KIN has ramped up its debt from AU$4m to AU$5m , which is made up of current and long term debt. With this growth in debt, KIN’s cash and short-term investments stands at AU$2m , ready to deploy 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 KIN’s operating efficiency ratios such as ROA here.
Does KIN’s liquid assets cover its short-term commitments?
At the current liabilities level of AU$8m liabilities, it seems that the business may not be able to easily meet these obligations given the level of current assets of AU$3m, with a current ratio of 0.4x.
Can KIN service its debt comfortably?
KIN is a relatively highly levered company with a debt-to-equity of 87%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since KIN is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
With a high level of debt on its balance sheet, KIN could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for KIN to increase its operational efficiency. In addition to this, 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 KIN has company-specific issues impacting its capital structure decisions. I suggest you continue to research KIN Mining to get a more holistic view of the stock by looking at:
-
Historical Performance: What has KIN’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.
-
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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.