Yahoo Finance Is Birchcliff Energy Ltd (TSE:BIR) A Financially Sound Company?
Birchcliff Energy Ltd (TSE:BIR) is a small-cap stock with a market capitalization of CA$1.19b. 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, especially ones that are currently loss-making, tend to be high risk. Evaluating financial health as part of your investment thesis is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into BIR here.
How much cash does BIR generate through its operations?
BIR has sustained its debt level by about CA$666.7m over the last 12 months – this includes both the current and long-term debt. At this stable level of debt, BIR currently has CA$53.0k remaining in cash and short-term investments for investing into the business. Additionally, BIR has generated CA$323.3m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 48.5%, indicating that BIR’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In BIR’s case, it is able to generate 0.48x cash from its debt capital.
Can BIR pay its short-term liabilities?
With current liabilities at CA$123.5m, it seems that the business is not able to meet these obligations given the level of current assets of CA$65.0m, with a current ratio of 0.53x below the prudent level of 3x.
Does BIR face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 39.1%, BIR’s debt level may be seen as prudent. This range is considered safe as BIR is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for BIR, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
BIR’s debt level is appropriate for a company its size. Furthermore, it is able to generate sufficient cash flow coverage, meaning it is able to put its debt in good use. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for BIR’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Birchcliff Energy to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for BIR’s future growth? Take a look at our free research report of analyst consensus for BIR’s outlook.
Valuation: What is BIR 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 BIR is currently mispriced by the market.
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.
