Mid-caps stocks, like Royal Gold, Inc. (NASDAQ:RGLD) with a market capitalization of US$5.5b, 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. Let’s take a look at RGLD’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into RGLD here.
How much cash does RGLD generate through its operations?
Over the past year, RGLD has reduced its debt from US$540m to US$355m , which also accounts for long term debt. With this reduction in debt, RGLD’s cash and short-term investments stands at US$117m for investing into the business. Moreover, RGLD has produced cash from operations of US$302m over the same time period, resulting in an operating cash to total debt ratio of 85%, signalling that RGLD’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In RGLD’s case, it is able to generate 0.85x cash from its debt capital.
Does RGLD’s liquid assets cover its short-term commitments?
Looking at RGLD’s US$37m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$159m, with a current ratio of 4.27x. Having said that, a ratio greater than 3x may be considered high by some.
Does RGLD face the risk of succumbing to its debt-load?
RGLD’s level of debt is appropriate relative to its total equity, at 17%. RGLD is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with RGLD, and the company has plenty of headroom and ability to raise debt should it need to in the future.
RGLD has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how RGLD has been performing in the past. I recommend you continue to research Royal Gold to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RGLD’s future growth? Take a look at our free research report of analyst consensus for RGLD’s outlook.
- Valuation: What is RGLD 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 RGLD 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.