Is Altius Minerals Corporation (TSE:ALS) A Financially Sound Company?
Altius Minerals Corporation (TSE:ALS) is a small-cap stock with a market capitalization of CA$483m. 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. Why is it important? Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into ALS here.
How does ALS’s operating cash flow stack up against its debt?
Over the past year, ALS has reduced its debt from CA$79m to CA$65m – this includes long-term debt. With this debt repayment, ALS currently has CA$75m remaining in cash and short-term investments , ready to deploy into the business. On top of this, ALS has generated CA$19m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 29%, meaning that ALS’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ALS’s case, it is able to generate 0.29x cash from its debt capital.
Can ALS pay its short-term liabilities?
At the current liabilities level of CA$25m, it seems that the business has been able to meet these commitments with a current assets level of CA$83m, leading to a 3.35x current account ratio. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Is ALS’s debt level acceptable?
With a debt-to-equity ratio of 16%, ALS’s debt level may be seen as prudent. This range is considered safe as ALS is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether ALS is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In ALS’s, case, the ratio of 2.98x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Next Steps:
ALS has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure ALS has company-specific issues impacting its capital structure decisions. I suggest you continue to research Altius Minerals to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ALS’s future growth? Take a look at our free research report of analyst consensus for ALS’s outlook.
Valuation: What is ALS 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 ALS 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.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
