Are Lodestar Minerals Limited’s (ASX:LSR) Interest Costs Too High?
Investors are always looking for growth in small-cap stocks like Lodestar Minerals Limited (ASX:LSR), with a market cap of AUD A$5.72M. However, an important fact which most ignore is: how financially healthy is the company? There are always disruptions which destabilize an existing industry, in which most small-cap companies are the first casualties. These factors make a basic understanding of a company’s financial position of utmost importance for a potential investor. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. See our latest analysis for LSR
How does LSR’s operating cash flow stack up against its debt?
Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. These catastrophes does not mean the company can stop servicing its debt obligations. We can test the impact of these adverse events by looking at whether cash from its current operations can pay back its current debt obligations. In the case of LSR, operating cash flow turned out to be -4x its debt level over the past twelve months. This means what LSR can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at LSR’s operations at this point in time.
Does LSR’s liquid assets cover its short-term commitments?
What about its commitments to other stakeholders such as payments to suppliers and employees? During times of unfavourable events, LSR could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We test for LSR’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that LSR 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.
Can LSR service its debt comfortably?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. LSR’s debt-to-equity ratio exceeds 100%, which indicates that the company is holding a high level of debt relative to its net worth. In the event of financial turmoil, the company may experience difficulty meeting interest and other debt obligations.
Next Steps:
Are you a shareholder? LSR’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. In the future, its financial position may be different. I recommend researching market expectations for LSR’s future growth on our free analysis platform.
Are you a potential investor? LSR’s high debt levels along with low cash coverage of debt as well as low liquidity coverage of short-term expenses may not build the strongest investment case. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of LSR’s track record. I encourage you to continue your research by taking a look at LSR’s past performance analysis on our free platform to conclude on LSR’s financial health.
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.
