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Mid-caps stocks, like Alamos Gold Inc. (TSE:AGI) with a market capitalization of CA$3.2b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Today we will look at AGI’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into AGI here.
Does AGI 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. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For AGI, the debt-to-equity ratio is zero, meaning that the company has no debt. It has been operating its business with zero debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with AGI, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does AGI’s liquid assets cover its short-term commitments?
Since Alamos Gold doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of US$111m, it appears that the company has been able to meet these commitments with a current assets level of US$363m, leading to a 3.26x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors.
AGI has no debt as well as ample cash to cover its near-term commitments. Its safe operations reduces risk for the company and shareholders, however, some degree of debt may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I'm sure AGI has company-specific issues impacting its capital structure decisions. I recommend you continue to research Alamos Gold to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AGI’s future growth? Take a look at our free research report of analyst consensus for AGI’s outlook.
- Valuation: What is AGI 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 AGI 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 email@example.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.