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Centerra Gold Inc. (TSE:CG): Financial Strength Analysis

Simply Wall St

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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Centerra Gold Inc. (TSE:CG), with a market capitalization of CA$2.8b, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. This article will examine CG’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of Centerra Gold's financial health, so you should conduct further analysis into CG here.

Check out our latest analysis for Centerra Gold

Does CG Produce Much Cash Relative To Its Debt?

CG's debt levels have fallen from US$346m to US$189m over the last 12 months – this includes long-term debt. With this reduction in debt, CG currently has US$180m remaining in cash and short-term investments , ready to be used for running the business. Additionally, CG has generated cash from operations of US$376m in the last twelve months, resulting in an operating cash to total debt ratio of 199%, meaning that CG’s current level of operating cash is high enough to cover debt.

Can CG meet its short-term obligations with the cash in hand?

At the current liabilities level of US$273m, it appears that the company has been able to meet these commitments with a current assets level of US$853m, leading to a 3.12x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.

TSX:CG Historical Debt, June 27th 2019

Can CG service its debt comfortably?

With a debt-to-equity ratio of 7.4%, CG's debt level is relatively low. This range is considered safe as CG is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether CG is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In CG's, case, the ratio of 8.22x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as CG’s high interest coverage is seen as responsible and safe practice.

Next Steps:

CG 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 an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for CG's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Centerra Gold to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for CG’s future growth? Take a look at our free research report of analyst consensus for CG’s outlook.
  2. Valuation: What is CG 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 CG is currently mispriced by the market.
  3. 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 editorial-team@simplywallst.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.