Is Australia United Mining Limited (ASX:AYM) A Financially Sound Company?
Investors are always looking for growth in small-cap stocks like Australia United Mining Limited (ASX:AYM), with a market cap of AU$3.81M. However, an important fact which most ignore is: how financially healthy is the business? Since AYM is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into AYM here.
How does AYM’s operating cash flow stack up against its debt?
Over the past year, AYM has reduced its debt from AU$1.63M to AU$942.04K – this includes both the current and long-term debt. With this debt payback, AYM currently has AU$450.59K remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of AYM’s operating efficiency ratios such as ROA here.
Can AYM meet its short-term obligations with the cash in hand?
At the current liabilities level of AU$146.49K liabilities, it appears that the company has been able to meet these obligations given the level of current assets of AU$489.25K, with a current ratio of 3.34x. However, anything about 3x may be excessive, since AYM may be leaving too much capital in low-earning investments.
Does AYM face the risk of succumbing to its debt-load?
AYM is a relatively highly levered company with a debt-to-equity of 54.33%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since AYM is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
AYM’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for AYM’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Australia United Mining to get a better picture of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
1. Historical Performance: What has AYM’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 AYM’s historicals for more clarity.
2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a free list of these great stocks here.
To help readers see pass 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.
