How Financially Strong Is Osisko Gold Royalties Ltd (TSE:OR)?

Osisko Gold Royalties Ltd (TSE:OR) is a small-cap stock with a market capitalization of CA$1.6b. 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? Given that OR is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into OR here.

How does OR’s operating cash flow stack up against its debt?

OR’s debt levels surged from CA$194m to CA$420m over the last 12 months , which includes long-term debt. With this growth in debt, OR’s cash and short-term investments stands at CA$147m , ready to deploy into the business. Additionally, OR has produced CA$85m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 20%, meaning that OR’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires a positive net income. In OR’s case, it is able to generate 0.2x cash from its debt capital.

Can OR meet its short-term obligations with the cash in hand?

With current liabilities at CA$24m, the company has been able to meet these obligations given the level of current assets of CA$306m, with a current ratio of 12.7x. However, a ratio above 3x may be considered excessive by some investors.

TSX:OR Historical Debt December 10th 18

Does OR face the risk of succumbing to its debt-load?

OR’s level of debt is appropriate relative to its total equity, at 22%. OR is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with OR, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

OR’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how OR has been performing in the past. I suggest you continue to research Osisko Gold Royalties to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for OR’s future growth? Take a look at our free research report of analyst consensus for OR’s outlook.

2. Valuation: What is OR 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 OR is currently mispriced by the market.

3. 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.