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What Investors Should Know About Lightbridge Corporation’s (NASDAQ:LTBR) Financial Strength

Zero-debt allows substantial financial flexibility, especially for small-cap companies like Lightbridge Corporation (NASDAQ:LTBR), as the company does not have to adhere to strict debt covenants. However, it also faces higher cost of capital given interest cost is generally lower than equity. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean LTBR has outstanding financial strength. I recommend you look at the following hurdles to assess LTBR’s financial health.

View our latest analysis for Lightbridge

Is LTBR right in choosing financial flexibility over lower cost of capital?

Debt funding can be cheaper than issuing new equity due to lower interest cost on debt. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. Either LTBR 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. LTBR delivered a negative revenue growth of -98%. While its negative growth hardly justifies opting for zero-debt, if the decline sustains, it may find it hard to raise debt at an acceptable cost.

NasdaqCM:LTBR Historical Debt November 16th 18
NasdaqCM:LTBR Historical Debt November 16th 18

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

Given zero long-term debt on its balance sheet, Lightbridge has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at US$1.4m, the company has been able to meet these commitments with a current assets level of US$26m, leading to a 18.7x current account ratio. Having said that, anything above 3x may be considered excessive by some investors.

Next Steps:

Having no debt on the books means LTBR has more financial freedom to keep growing at its current fast rate. Since there is also no concerns around LTBR’s liquidity needs, this may be its optimal capital structure for the time being. Going forward, its financial position may change. I admit this is a fairly basic analysis for LTBR’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Lightbridge to get a better picture of the stock by looking at:

  1. Historical Performance: What has LTBR’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.

  2. 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.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.