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Is Golden Energy and Resources Limited’s (SGX:AUE) Balance Sheet A Threat To Its Future?

Investors are always looking for growth in small-cap stocks like Golden Energy and Resources Limited (SGX:AUE), with a market cap of S$835.35m. However, an important fact which most ignore is: how financially healthy is the business? Oil and Gas companies, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into AUE here.

Does AUE produce enough cash relative to debt?

AUE’s debt levels surged from S$49.66m to S$94.98m over the last 12 months , which is made up of current and long term debt. With this rise in debt, AUE’s cash and short-term investments stands at S$190.10m for investing into the business. On top of this, AUE has generated cash from operations of S$168.93m over the same time period, resulting in an operating cash to total debt ratio of 177.85%, indicating that AUE’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AUE’s case, it is able to generate 1.78x cash from its debt capital.

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

Looking at AUE’s most recent S$222.56m liabilities, the company has been able to meet these commitments with a current assets level of S$431.09m, leading to a 1.94x current account ratio. Usually, for Oil and Gas companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

SGX:AUE Historical Debt June 26th 18
SGX:AUE Historical Debt June 26th 18

Is AUE’s debt level acceptable?

With debt reaching 47.58% of equity, AUE may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if AUE’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For AUE, the ratio of 40.5x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving AUE ample headroom to grow its debt facilities.

Next Steps:

Although AUE’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 AUE has been performing in the past. You should continue to research Golden Energy and Resources to get a better picture of the small-cap by looking at:

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  1. Future Outlook: What are well-informed industry analysts predicting for AUE’s future growth? Take a look at our free research report of analyst consensus for AUE’s outlook.

  2. Valuation: What is AUE 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 AUE is currently mispriced by the market.

  3. 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.