While small-cap stocks, such as Lithium Americas Corp. (TSE:LAC) with its market cap of CA$505m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that LAC is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. Nevertheless, this is just a partial view of the stock, and I suggest you dig deeper yourself into LAC here.
LAC’s Debt (And Cash Flows)
LAC’s debt levels surged from US$944k to US$11m over the last 12 months , which accounts for long term debt. With this growth in debt, LAC currently has US$26m remaining in cash and short-term investments , ready to be used for running the business. Its negative operating cash flow means calculating cash-to-debt wouldn’t be useful. For this article’s sake, I won’t be looking at this today, but you can examine some of LAC’s operating efficiency ratios such as ROA here.
Does LAC’s liquid assets cover its short-term commitments?
At the current liabilities level of US$3.8m, it seems that the business has been able to meet these obligations given the level of current assets of US$33m, with a current ratio of 8.56x. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio greater than 3x may be considered high by some.
Is LAC’s debt level acceptable?
With a debt-to-equity ratio of 12%, LAC’s debt level may be seen as prudent. This range is considered safe as LAC is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. LAC’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
LAC’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how LAC has been performing in the past. I suggest you continue to research Lithium Americas to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for LAC’s future growth? Take a look at our free research report of analyst consensus for LAC’s outlook.
- Historical Performance: What has LAC’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.
- 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 email@example.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.