All You Need To Know About Evolution Mining Limited's (ASX:EVN) Financial Health

Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Evolution Mining Limited (ASX:EVN), with a market capitalization of AU$5.4b, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. EVN’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into EVN here.

View our latest analysis for Evolution Mining

How does EVN’s operating cash flow stack up against its debt?

Over the past year, EVN has reduced its debt from AU$436m to AU$386m – this includes long-term debt. With this debt payback, EVN's cash and short-term investments stands at AU$323m , ready to deploy into the business. On top of this, EVN has generated AU$714m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 185%, meaning that EVN’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In EVN’s case, it is able to generate 1.85x cash from its debt capital.

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

Looking at EVN’s AU$325m in current liabilities, the company has been able to meet these obligations given the level of current assets of AU$659m, with a current ratio of 2.02x. Generally, for Metals and Mining companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Can EVN service its debt comfortably?

With debt at 17% of equity, EVN may be thought of as appropriately levered. This range is considered safe as EVN is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether EVN 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 EVN's, case, the ratio of 19.85x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

EVN’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I'm sure EVN has company-specific issues impacting its capital structure decisions. I recommend you continue to research Evolution Mining to get a better picture of the stock by looking at:

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

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.