Yahoo Finance Copper Mountain Mining Corporation (TSE:CMMC): Time For A Financial Health Check
While small-cap stocks, such as Copper Mountain Mining Corporation (TSE:CMMC) with its market cap of CA$192m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into CMMC here.
Does CMMC produce enough cash relative to debt?
CMMC has shrunken its total debt levels in the last twelve months, from CA$372m to CA$298m , which is made up of current and long term debt. With this debt payback, CMMC currently has CA$72m remaining in cash and short-term investments , ready to deploy into the business. Moreover, CMMC has generated CA$71m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 24%, indicating that CMMC’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CMMC’s case, it is able to generate 0.24x cash from its debt capital.
Can CMMC meet its short-term obligations with the cash in hand?
Looking at CMMC’s most recent CA$136m liabilities, the company has been able to meet these commitments with a current assets level of CA$145m, leading to a 1.06x current account ratio. Usually, for Metals and Mining companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does CMMC face the risk of succumbing to its debt-load?
With debt reaching 91% of equity, CMMC may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In CMMC’s case, the ratio of 4.98x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
CMMC’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. 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 CMMC has company-specific issues impacting its capital structure decisions. I suggest you continue to research Copper Mountain Mining to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CMMC’s future growth? Take a look at our free research report of analyst consensus for CMMC’s outlook.
Valuation: What is CMMC 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 CMMC 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.
