Investors are always looking for growth in small-cap stocks like Iconic Minerals Ltd (TSXV:ICM), with a market cap of CA$7.66M. However, an important fact which most ignore is: how financially healthy is the business? Since ICM is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into ICM here.

Does ICM generate enough cash through operations?

Over the past year, ICM has maintained its debt levels at around CA$2.06M comprising of short- and long-term debt. At this stable level of debt, ICM currently has CA$11.20K remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of ICM’s operating efficiency ratios such as ROA here.

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

With current liabilities at CA$1.74M, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.018x, which is below the prudent industry ratio of 3x.

Can ICM service its debt comfortably?

With total debt exceeding equities, ICM is considered a highly levered 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 ICM is presently loss-making, there’s a question of sustainability of its current operations. 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:

ICM’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for ICM’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Iconic Minerals to get a more holistic view of the stock by looking at:

1. Historical Performance: What has ICM’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.

2. 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.