Investors are always looking for growth in small-cap stocks like President Energy Plc (LON:PPC), with a market cap of UK£90m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Oil and Gas industry, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into PPC here.
How does PPC’s operating cash flow stack up against its debt?
PPC has built up its total debt levels in the last twelve months, from US$11m to US$21m , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$2m , ready to deploy 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of PPC’s operating efficiency ratios such as ROA here.
Does PPC’s liquid assets cover its short-term commitments?
At the current liabilities level of US$21m liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of US$13m, with a current ratio of 0.62x.
Does PPC face the risk of succumbing to its debt-load?
PPC’s level of debt is appropriate relative to its total equity, at 15%. PPC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. PPC’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
Although PPC’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. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure PPC has company-specific issues impacting its capital structure decisions. I suggest you continue to research President Energy to get a more holistic view of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for PPC’s future growth? Take a look at our free research report of analyst consensus for PPC’s outlook.
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Valuation: What is PPC worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether PPC is currently mispriced by the market.
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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.