Yahoo Finance How Financially Strong Is Atlantic Gold Corporation (CVE:AGB)?
Atlantic Gold Corporation (CVE:AGB) is a small-cap stock with a market capitalization of CA$383.2m. 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? Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into AGB here.
How does AGB’s operating cash flow stack up against its debt?
AGB’s debt level has been constant at around CA$118.4m over the previous year made up of current and long term debt. At this stable level of debt, AGB’s cash and short-term investments stands at CA$16.1m , ready to deploy into the business. Additionally, AGB has generated CA$14.2m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 12.0%, indicating that AGB’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In AGB’s case, it is able to generate 0.12x cash from its debt capital.
Can AGB pay its short-term liabilities?
Looking at AGB’s most recent CA$61.9m liabilities, it appears that the company is not able to meet these obligations given the level of current assets of CA$29.0m, with a current ratio of 0.47x below the prudent level of 3x.
Is AGB’s debt level acceptable?
With a debt-to-equity ratio of 93.7%, AGB can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if AGB’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For AGB, the ratio of 3.95x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving AGB ample headroom to grow its debt facilities.
Next Steps:
AGB’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure AGB has company-specific issues impacting its capital structure decisions. I suggest you continue to research Atlantic Gold to get a more holistic view of the stock by looking at:
Historical Performance: What has AGB’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.
