Investors are always looking for growth in small-cap stocks like Taseko Mines Limited ( TSE:TKO ), with a market cap of CA$180m. However, an important fact which most ignore is: how financially healthy is the business? Given that TKO is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. Nevertheless, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into TKO here .
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TKO’s Debt (And Cash Flows)
Over the past year, TKO has ramped up its debt from CA$335m to CA$353m – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at CA$35m to keep the business going. Moreover, TKO has produced cash from operations of CA$90m over the same time period, leading to an operating cash to total debt ratio of 25%, meaning that TKO’s current level of operating cash is high enough to cover debt.
Can TKO pay its short-term liabilities?
With current liabilities at CA$66m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.35x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Metals and Mining companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is TKO’s debt level acceptable?
Since total debt levels exceed equity, TKO is a highly leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since TKO is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although TKO’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven't considered other factors such as how TKO has been performing in the past. You should continue to research Taseko Mines to get a more holistic view of the small-cap by looking at:
- Future Outlook : What are well-informed industry analysts predicting for TKO’s future growth? Take a look at our free research report of analyst consensus for TKO’s outlook.
- Valuation : What is TKO 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 TKO 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 .
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