Stocks with market capitalization between $2B and $10B, such as Cameco Corporation (TSE:CCO) with a size of CA$5.4b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. CCO’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 CCO here.
Does CCO produce enough cash relative to debt?
CCO has sustained its debt level by about CA$1.5b over the last 12 months made up of current and long term debt. At this stable level of debt, the current cash and short-term investment levels stands at CA$837m , ready to deploy into the business. Moreover, CCO has generated CA$806m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 54%, meaning that CCO’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In CCO’s case, it is able to generate 0.54x cash from its debt capital.
Can CCO pay its short-term liabilities?
At the current liabilities level of CA$325m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 6.16x. Having said that, many consider anything above 3x to be quite high.
Can CCO service its debt comfortably?
With a debt-to-equity ratio of 31%, CCO’s debt level may be seen as prudent. This range is considered safe as CCO is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. CCO’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
CCO’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, 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 CCO has company-specific issues impacting its capital structure decisions. I recommend you continue to research Cameco to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CCO’s future growth? Take a look at our free research report of analyst consensus for CCO’s outlook.
- Valuation: What is CCO 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 CCO 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 firstname.lastname@example.org.