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Investors are always looking for growth in small-cap stocks like White Cliff Minerals Limited (ASX:WCN), with a market cap of AU$2.3m. However, an important fact which most ignore is: how financially healthy is the business? Since WCN is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into WCN here.
How does WCN’s operating cash flow stack up against its debt?
Over the past year, WCN has borrowed debt capital of around AU$600.0k , which is mainly comprised of near term debt. With this increase in debt, WCN’s cash and short-term investments stands at AU$17.6k 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 assess some of WCN’s operating efficiency ratios such as ROA here.
Can WCN meet its short-term obligations with the cash in hand?
At the current liabilities level of AU$1.0m liabilities, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.063x.
Can WCN service its debt comfortably?
With debt reaching 92.5% of equity, WCN may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since WCN is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
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WCN’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. 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 WCN has company-specific issues impacting its capital structure decisions. I suggest you continue to research White Cliff Minerals to get a better picture of the stock by looking at:
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Historical Performance: What has WCN’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.
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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.