Yahoo Finance Is Range Resources Limited (ASX:RRS) A Financially Sound Company?
Range Resources Limited (ASX:RRS) is a small-cap stock with a market capitalization of AU$30.38M. 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? Oil and Gas companies, in particular ones that run negative earnings, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into RRS here.
Does RRS generate an acceptable amount of cash through operations?
In the previous 12 months, RRS’s rose by about US$21.07M – this includes both the current and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$17.25M for investing into the business. Additionally, RRS has produced US$1.40M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 6.66%, indicating that RRS’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for unprofitable companies since metrics such as return on asset (ROA) requires a positive net income. In RRS’s case, it is able to generate 0.067x cash from its debt capital.
Does RRS’s liquid assets cover its short-term commitments?
At the current liabilities level of US$3.02M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$25.58M, with a current ratio of 8.46x. However, a ratio greater than 3x may be considered as too high, as RRS could be holding too much capital in a low-return investment environment.
Does RRS face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, RRS is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since RRS is presently loss-making, sustainability of its current state of operations becomes a concern. 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:
RRS’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for RRS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Range Resources to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for RRS’s future growth? Take a look at our free research report of analyst consensus for RRS’s outlook.
Historical Performance: What has RRS’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 pass 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.
