What Investors Should Know About Core Gold Inc’s (TSXV:CGLD) Financial Strength

While small-cap stocks, such as Core Gold Inc (TSXV:CGLD) with its market cap of CAD CA$22.84M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. There are always disruptions which destabilize an existing industry, in which most small-cap companies are the first casualties. Here are few basic financial health checks to judge whether a company fits the bill or there is an additional risk which you should consider before taking the plunge. See our latest analysis for CGLD

Does CGLD generate an acceptable amount of cash through operations?

There are many headwinds that come unannounced, such as natural disasters and political turmoil, which can challenge a small business and its ability to adapt and recover. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. Can CGLD pay off what it owes to its debtholder by using only cash from its operational activities? CGLD’s recent operating cash flow was -0.72 times its debt within the past year. This means what CGLD 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 CGLD’s operations at this point in time.

Does CGLD’s liquid assets cover its short-term commitments?

What about its other commitments such as payments to suppliers and salaries to its employees? In times of adverse events, CGLD may need to liquidate its short-term assets to pay these immediate obligations. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that CGLD does not have enough liquid assets on hand to meet its upcoming liabilities. Though this is a common practice, since cash is better utilized invested in the business or returned to shareholders, it does raise some concerns for investors should adverse events arise.

Can CGLD service its debt comfortably?

A substantially higher debt poses a significant threat to a company’s profitability during a downturn. In the case of CGLD, the debt-to-equity ratio is 76.12%, which indicates that its debt can cause trouble for the company in a downturn but it is still at a manageable level.

Next Steps:

Are you a shareholder? CGLD’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. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may change. I recommend keeping abreast of market expectations for CGLD’s future growth on our free analysis platform.

Are you a potential investor? CGLD’s high debt levels on top of low cash coverage of debt in addition to low liquidity coverage of short-term obligations may not build the strongest investment case. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of CGLD’s track record. I encourage you to continue your research by taking a look at CGLD’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.

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.