Yahoo Finance What does Oyster Oil and Gas Ltd’s (CVE:OY) Balance Sheet Tell Us About Its Future?
Investors are always looking for growth in small-cap stocks like Oyster Oil and Gas Ltd (CVE:OY), with a market cap of CA$3m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Oil and Gas industry, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is essential. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into OY here.
Does OY produce enough cash relative to debt?
In the previous 12 months, OY’s rose by about CA$1m , which is mainly comprised of near term debt. With this increase in debt, the current cash and short-term investment levels stands at CA$34k for investing 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of OY’s operating efficiency ratios such as ROA here.
Can OY meet its short-term obligations with the cash in hand?
Looking at OY’s most recent CA$2m liabilities, the company may not have an easy time meeting these commitments with a current assets level of CA$49k, leading to a current ratio of 0.024x.
Can OY service its debt comfortably?
With debt at 13% of equity, OY may be thought of as appropriately levered. This range is considered safe as OY is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for OY, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Although OY’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. Furthermore, 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 OY’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Oyster Oil and Gas to get a better picture of the stock by looking at:
Historical Performance: What has OY’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.
