Yahoo Finance Avanti Energy Inc (CVE:AVN): Time For A Financial Health Check
Avanti Energy Inc (CVE:AVN) is a small-cap stock with a market capitalization of CA$2m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Oil and Gas companies, in particular ones that run negative earnings, tend to be high risk. Assessing first and foremost the financial health is crucial. I believe these basic checks tell most of the story you need to know. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into AVN here.
How much cash does AVN generate through its operations?
AVN has built up its total debt levels in the last twelve months, from CA$455k to CA$479k , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at CA$228k , ready to deploy 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of AVN’s operating efficiency ratios such as ROA here.
Can AVN pay its short-term liabilities?
With current liabilities at CA$217k, it appears that the company has been able to meet these obligations given the level of current assets of CA$322k, with a current ratio of 1.48x. Generally, for Oil and Gas companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can AVN service its debt comfortably?
With debt at 11% of equity, AVN may be thought of as appropriately levered. AVN is not taking on too much debt commitment, which may be constraining for future growth. AVN’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 AVN’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 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 AVN has company-specific issues impacting its capital structure decisions. You should continue to research Avanti Energy to get a more holistic view of the stock by looking at:
Historical Performance: What has AVN’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.
