Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Lundin Mining Corporation (TSX:LUN) with a market-capitalization of CA$6.49B, rarely draw their attention. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. This article will examine LUN’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into LUN here. See our latest analysis for Lundin Mining
Does LUN generate an acceptable amount of cash through operations?
Over the past year, LUN has reduced its debt from US$983.38M to US$449.95M , which comprises of short- and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$1.57B for investing into the business. Moreover, LUN has generated US$903.48M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 200.80%, indicating that LUN’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In LUN’s case, it is able to generate 2.01x cash from its debt capital.
Can LUN pay its short-term liabilities?
At the current liabilities level of US$539.75M liabilities, the company has been able to meet these obligations given the level of current assets of US$2.25B, with a current ratio of 4.17x. Though, anything about 3x may be excessive, since LUN may be leaving too much capital in low-earning investments.
Can LUN service its debt comfortably?
With a debt-to-equity ratio of 10.84%, LUN’s debt level may be seen as prudent. LUN is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether LUN 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 LUN’s, case, the ratio of 9.95x suggests that interest is appropriately 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.
LUN’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 proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how LUN has been performing in the past. I suggest you continue to research Lundin Mining to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LUN’s future growth? Take a look at our free research report of analyst consensus for LUN’s outlook.
- Valuation: What is LUN 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 LUN 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.