Yahoo Finance Is Contact Gold Corp’s (CVE:C) Balance Sheet A Threat To Its Future?
While small-cap stocks, such as Contact Gold Corp (CVE:C) with its market cap of CA$20.7m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that C is not presently profitable, it’s crucial to understand 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. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into C here.
How much cash does C generate through its operations?
C’s debt levels surged from CA$200.0k to CA$10.1m over the last 12 months , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at CA$3.7m for investing 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. For this article’s sake, I won’t be looking at this today, but you can examine some of C’s operating efficiency ratios such as ROA here.
Can C meet its short-term obligations with the cash in hand?
With current liabilities at CA$564.3k, it appears that the company has been able to meet these obligations given the level of current assets of CA$4.1m, with a current ratio of 7.26x. Having said that, anything above 3x may be considered excessive by some investors. They might argue C is leaving too much capital in low-earning investments.
Does C face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 29.6%, C’s debt level may be seen as prudent. This range is considered safe as C is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for C, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Although C’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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure C has company-specific issues impacting its capital structure decisions. You should continue to research Contact Gold to get a better picture of the stock by looking at:
Historical Performance: What has C’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.
