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Mid-caps stocks, like OceanaGold Corporation (TSE:OGC) with a market capitalization of CA$2.8b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. 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. OGC’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 information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into OGC here.
See our latest analysis for OceanaGold
Does OGC produce enough cash relative to debt?
Over the past year, OGC has reduced its debt from US$316m to US$180m , which also accounts for long term debt. With this reduction in debt, OGC’s cash and short-term investments stands at US$70m , ready to deploy into the business. Moreover, OGC has produced US$429m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 238%, indicating that OGC’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In OGC’s case, it is able to generate 2.38x cash from its debt capital.
Can OGC pay its short-term liabilities?
At the current liabilities level of US$161m, it seems that the business has been able to meet these obligations given the level of current assets of US$254m, with a current ratio of 1.58x. For Metals and Mining companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Is OGC’s debt level acceptable?
With a debt-to-equity ratio of 11%, OGC’s debt level may be seen as prudent. This range is considered safe as OGC is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether OGC 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 OGC’s, case, the ratio of 14.51x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving OGC ample headroom to grow its debt facilities.
Next Steps:
OGC’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. 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 OGC has company-specific issues impacting its capital structure decisions. I suggest you continue to research OceanaGold to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for OGC’s future growth? Take a look at our free research report of analyst consensus for OGC’s outlook.
- Valuation: What is OGC 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 OGC 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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.