With a market capitalization of US$17.08b, Newmont Mining Corporation (NYSE:NEM) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Today I will analyse the latest financial data for NEM to determine is solvency and liquidity and whether the stock is a sound investment.
How much cash does NEM generate through its operations?
NEM’s debt levels have fallen from US$4.62b to US$4.12b over the last 12 months – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$3.18b , ready to deploy into the business. Moreover, NEM has generated US$2.10b in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 51.1%, meaning that NEM’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In NEM’s case, it is able to generate 0.51x cash from its debt capital.
Does NEM’s liquid assets cover its short-term commitments?
At the current liabilities level of US$1.08b liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.6x. However, anything about 3x may be excessive, since NEM may be leaving too much capital in low-earning investments.
Is NEM’s debt level acceptable?
With a debt-to-equity ratio of 34.8%, NEM’s debt level may be seen as prudent. NEM is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if NEM’s debt levels are sustainable by measuring interest payments against earnings of a company. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. For NEM, the ratio of 9.28x suggests that interest is appropriately covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like NEM are considered a risk-averse investment.
NEM’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, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure NEM has company-specific issues impacting its capital structure decisions. I suggest you continue to research Newmont Mining to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NEM’s future growth? Take a look at our free research report of analyst consensus for NEM’s outlook.
- Valuation: What is NEM 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 NEM 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.
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