Oryx Petroleum Corporation Limited (TSX:OXC) is a small-cap stock with a market capitalization of $150.91M. 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. The significance of doing due diligence on a company’s financial strength stems from the fact that over 20,000 companies go bankrupt in every quarter in the US alone. These factors make a basic understanding of a company’s financial position of utmost importance for a potential investor. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. See our latest analysis for OXC
How does OXC’s operating cash flow stack up against its debt?
There are many headwinds that come unannounced. For example, in 2011, an earthquake in Japan wiped out a significant chunk of its auto supply chain sector. If these companies had not been well-established with plenty of cash cushion, it would be near impossible to recover damages.Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future.Can OXC pay off what it owes to its debtholder by using only cash from its operational activities? OXC’s recent operating cash flow was -0.02 times its debt within the past year. This means what OXC can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at OXC’s operations at this point in time.
Can OXC pay its short-term liabilities?
What about its commitments to other stakeholders such as payments to suppliers and employees? During times of unfavourable events, OXC could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that OXC is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Does OXC face the risk of succumbing to its debt-load?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. In the case of OXC, the debt-to-equity ratio is 12.93%, which means its debt level does not pose a threat to its operations right now.
OXC’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Now that you know to keep debt in mind when putting together your investment thesis, I recommend you check out our latest free analysis report on Oryx Petroleum to see what other factors for OXC you should consider.
PS. If you are not interested in Oryx Petroleum anymore, you can use our free platform to see my list of over 150 other stocks with a high growth potential.
These great dividend stocks are beating your savings account
Not only have these stocks been reliable dividend payers for the last 10 years but with the yield over 3% they are also easily beating your savings account (let alone the possible capital gains). Click here to see them for FREE on Simply Wall St.