Yahoo Finance Is Cooper Energy Limited's (ASX:COE) Balance Sheet Strong Enough To Weather A Storm?
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While small-cap stocks, such as Cooper Energy Limited (ASX:COE) with its market cap of AU$868m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since COE is loss-making right now, it’s essential to understand 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. However, these checks don't give you a full picture, so I recommend you dig deeper yourself into COE here.
COE’s Debt (And Cash Flows)
COE has built up its total debt levels in the last twelve months, from AU$79m to AU$180m – this includes long-term debt. With this rise in debt, COE currently has AU$194m remaining in cash and short-term investments to keep the business going. Moreover, COE has produced cash from operations of AU$11m during the same period of time, resulting in an operating cash to total debt ratio of 5.9%, meaning that COE’s current level of operating cash is not high enough to cover debt.
Can COE pay its short-term liabilities?
Looking at COE’s AU$34m in current liabilities, the company has been able to meet these commitments with a current assets level of AU$217m, leading to a 6.34x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. However, a ratio greater than 3x may be considered high by some.
Does COE face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 42%, COE can be considered as an above-average 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 COE is currently loss-making, 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.
Next Steps:
Although COE’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 COE has been performing in the past. I suggest you continue to research Cooper Energy to get a more holistic view of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for COE’s future growth? Take a look at our free research report of analyst consensus for COE’s outlook.
Valuation: What is COE 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 COE 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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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
