Yahoo Finance Ecolomondo Corporation (CVE:ECM): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Ecolomondo Corporation (CVE:ECM), with a market cap of CA$62m. However, an important fact which most ignore is: how financially healthy is the business? Given that ECM is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into ECM here.
How much cash does ECM generate through its operations?
ECM has shrunken its total debt levels in the last twelve months, from CA$6m to CA$2m – this includes both the current and long-term debt. With this debt payback, the current cash and short-term investment levels stands at CA$3m 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of ECM’s operating efficiency ratios such as ROA here.
Does ECM’s liquid assets cover its short-term commitments?
Looking at ECM’s most recent CA$2m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.3x. Generally, for Commercial Services companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can ECM service its debt comfortably?
With debt reaching 43% of equity, ECM may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since ECM is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
At its current level of cash flow coverage, ECM has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how ECM has been performing in the past. I suggest you continue to research Ecolomondo to get a more holistic view of the stock by looking at:
Valuation: What is ECM 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 ECM is currently mispriced by the market.
Historical Performance: What has ECM’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.
