Albert Mining Inc (CVE:AIIM), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is AIIM will have to follow strict debt obligations which will reduce its financial flexibility. While AIIM has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status.
Is AIIM growing fast enough to value financial flexibility over lower cost of capital?
There are well-known benefits of including debt in capital structure, primarily a lower cost of capital. Though, the trade-offs are that lenders require stricter capital management requirements, in addition to having a higher claim on company assets relative to shareholders. Either AIIM does not have access to cheap capital, or it may believe this trade-off is not worth it. This makes sense only if the company has a competitive edge and is growing fast off its equity capital.
Can AIIM pay its short-term liabilities?
Since Albert Mining 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. Looking at AIIM’s most recent CA$171k liabilities, it appears that the company has been able to meet these commitments with a current assets level of CA$664k, leading to a 3.88x current account ratio. Having said that, many consider anything above 3x to be quite high.
As a high-growth company, it may be beneficial for AIIM to have some financial flexibility, hence zero-debt. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. In the future, its financial position may change. This is only a rough assessment of financial health, and I’m sure AIIM has company-specific issues impacting its capital structure decisions. I recommend you continue to research Albert Mining to get a better picture of the stock by looking at:
- Historical Performance: What has AIIM’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.
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