Kinross Gold Corporation (TSX:K): Financial Strength Analysis
Mid-caps stocks, like Kinross Gold Corporation (TSX:K) with a market capitalization of CAD CA$6.82B, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. I recommend you look at the following hurdles to assess K’s financial health. View our latest analysis for Kinross Gold
Can K service its debt comfortably?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. For K, the debt-to-equity ratio is 39.22%, which indicates that its debt is at an acceptable level. We can test if K’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings should cover interest by at least three times, therefore reducing concerns when profit is highly volatile. K’s interest on debt is not strongly covered by earnings as it sits at around 2.07x. Lenders may be more reluctant to lend out more funding as K’s low interest coverage already puts the company at higher risk of default.
Can K pay its short-term liabilities?
Debt to equity ratio is an important aspect of financial strength. But if the company has a substantial amount of cash on its balance sheet, that should allay some fear of a debt overhang and increase the chance of meeting upcoming liabilities. We need to assess K’s cash and other liquid assets against its upcoming expenses. Our analysis shows that K is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Next Steps:
Are you a shareholder? K’s debt level is appropriate for a company its size. Furthermore, it is able to generate sufficient cash flow coverage, meaning it is able to put its debt in good use. Given that K’s financial position may be different in the future, You should continue researching market expectations for K’s future growth on our free analysis platform.
Are you a potential investor? Although understanding the serviceability of debt is important when evaluating which companies are viable investments, it shouldn’t be the deciding factor. After all, debt financing is an important source of funding for companies seeking to grow through new projects and investments. K’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
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.
