Yahoo Finance What You Must Know About Sherritt International Corporation’s (TSE:S) Financial Strength
Sherritt International Corporation (TSE:S) is a small-cap stock with a market capitalization of CA$246m. 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 vital, 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, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into S here.
How does S’s operating cash flow stack up against its debt?
S’s debt levels have fallen from CA$2.2b to CA$695m over the last 12 months , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at CA$197m , ready to deploy 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 S’s operating efficiency ratios such as ROA here.
Can S meet its short-term obligations with the cash in hand?
At the current liabilities level of CA$192m liabilities, the company has been able to meet these commitments with a current assets level of CA$485m, leading to a 2.53x current account ratio. For Metals and Mining companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is S’s debt level acceptable?
S is a relatively highly levered company with a debt-to-equity of 60%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
Next Steps:
S’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. 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 S has been performing in the past. You should continue to research Sherritt International to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for S’s future growth? Take a look at our free research report of analyst consensus for S’s outlook.
Valuation: What is S 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 S 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.
