Is Cameco Corporation’s (TSE:CCO) Liquidity Good Enough?

Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Cameco Corporation (TSE:CCO), with a market capitalization of CA$5.96b, rarely draw their attention from the investing community. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. 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. Don’t forget that this is a general and concentrated examination of Cameco’s financial health, so you should conduct further analysis into CCO here. See our latest analysis for Cameco

How much cash does CCO generate through its operations?

CCO’s debt level has been constant at around CA$1.49b over the previous year comprising of short- and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at CA$591.62m , ready to deploy into the business. Additionally, CCO has produced cash from operations of CA$596.05m during the same period of time, leading to an operating cash to total debt ratio of 39.88%, indicating that CCO’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In CCO’s case, it is able to generate 0.4x cash from its debt capital.

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

Looking at CCO’s most recent CA$410.99m 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 5.2x. Though, anything about 3x may be excessive, since CCO may be leaving too much capital in low-earning investments.

TSX:CCO Historical Debt June 22nd 18
TSX:CCO Historical Debt June 22nd 18

Is CCO’s debt level acceptable?

CCO’s level of debt is appropriate relative to its total equity, at 30.38%. CCO is not taking on too much debt commitment, 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.

Next Steps:

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 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:

  1. 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.
  2. 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.
  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.