Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Cameco Corporation (TSE:CCO), with a market cap of CA$6.2b, often get neglected by retail investors. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. This article will examine CCO’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. 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 Much Cash Relative To Its Debt?
Over the past year, CCO has maintained its debt levels at around CA$1.5b which accounts for long term debt. At this stable level of debt, CCO currently has CA$1.1b remaining in cash and short-term investments , ready to be used for running the business. Moreover, CCO has produced CA$668m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 45%, meaning that CCO’s operating cash is sufficient to cover its debt.
Can CCO pay its short-term liabilities?
At the current liabilities level of CA$876m, the company has been able to meet these obligations given the level of current assets of CA$2.1b, with a current ratio of 2.38x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Oil and Gas companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can CCO service its debt comfortably?
CCO’s level of debt is appropriate relative to its total equity, at 30%. CCO is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if CCO’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 CCO, the ratio of 5.63x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving CCO ample headroom to grow its debt facilities.
CCO’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how CCO has been performing in the past. I suggest you continue to research Cameco to get a better picture 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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