Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Aurora Cannabis Inc (TSX:ACB) with a market-capitalization of CA$4.53B, rarely draw their attention. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine ACB’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 ACB here. View our latest analysis for Aurora Cannabis
How does ACB’s operating cash flow stack up against its debt?
ACB’s debt levels surged from CA$10.49M to CA$63.89M over the last 12 months , which is made up of current and long term debt. With this growth in debt, ACB currently has CA$174.68M remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of ACB’s operating efficiency ratios such as ROA here.
Does ACB’s liquid assets cover its short-term commitments?
With current liabilities at CA$23.46M, it appears that the company has been able to meet these commitments with a current assets level of CA$193.61M, leading to a 8.25x current account ratio. Though, anything about 3x may be excessive, since ACB may be leaving too much capital in low-earning investments.
Does ACB face the risk of succumbing to its debt-load?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. For Aurora Cannabis, investors should not worry about its debt levels because the company has very, very little on its balance sheet! It has been operating its business with miniscule debt and utilising only its equity capital. Investors’ risk associated with debt is virtually non-existent with ACB, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Although ACB’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for ACB’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Aurora Cannabis to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ACB’s future growth? Take a look at our free research report of analyst consensus for ACB’s outlook.
- Valuation: What is ACB 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 ACB 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.