Is Cameco Corporation (LON:0R35) As Strong As Its Balance Sheet Indicates?

Stocks with market capitalization between $2B and $10B, such as Cameco Corporation (LON:0R35) with a size of CA$6.2b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. 0R35’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 0R35 here.

View our latest analysis for Cameco

0R35’s Debt (And Cash Flows)

Over the past year, 0R35 has maintained its debt levels at around CA$1.5b which accounts for long term debt. At this current level of debt, 0R35’s cash and short-term investments stands at CA$1.1b , ready to be used for running the business. Additionally, 0R35 has generated CA$668m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 45%, signalling that 0R35’s current level of operating cash is high enough to cover debt.

Does 0R35’s liquid assets cover its short-term commitments?

At the current liabilities level of CA$876m, it seems that the business has been able to meet these commitments with a current assets level of CA$2.1b, leading to a 2.38x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Oil and Gas companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

LSE:0R35 Historical Debt, March 25th 2019
LSE:0R35 Historical Debt, March 25th 2019

Can 0R35 service its debt comfortably?

0R35’s level of debt is appropriate relative to its total equity, at 30%. This range is considered safe as 0R35 is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether 0R35 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 0R35’s, case, the ratio of 5.63x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as 0R35’s high interest coverage is seen as responsible and safe practice.

Next Steps:

0R35’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. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure 0R35 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Cameco to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 0R35’s future growth? Take a look at our free research report of analyst consensus for 0R35’s outlook.
  2. Valuation: What is 0R35 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 0R35 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.

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.