Are Ivanhoe Mines Ltd’s (TSE:IVN) Interest Costs Too High?
Ivanhoe Mines Ltd (TSE:IVN) is a small-cap stock with a market capitalization of CA$2.26b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? So, understanding the company’s financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into IVN here.
How does IVN’s operating cash flow stack up against its debt?
IVN’s debt levels surged from CA$26.88m to CA$31.55m over the last 12 months , which is made up of current and long term debt. With this increase in debt, IVN currently has CA$189.98m 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 assess some of IVN’s operating efficiency ratios such as ROA here.
Does IVN’s liquid assets cover its short-term commitments?
With current liabilities at CA$26.19m, the company has been able to meet these obligations given the level of current assets of CA$205.53m, with a current ratio of 7.85x. Though, a ratio greater than 3x may be considered as too high, as IVN could be holding too much capital in a low-return investment environment.
Does IVN face the risk of succumbing to its debt-load?
With debt at 2.65% of equity, IVN may be thought of as having low leverage. This range is considered safe as IVN is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
Next Steps:
IVN’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. 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 IVN’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Ivanhoe Mines to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for IVN’s future growth? Take a look at our free research report of analyst consensus for IVN’s outlook.
Valuation: What is IVN 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 IVN 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.
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.
