Has Lundin Mining Corporation (TSE:LUN) Got Enough Cash To Cover Its Short-Term Obligations?
Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Lundin Mining Corporation (TSX:LUN), with a market cap of CA$6.18B, are often out of the spotlight. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Today we will look at LUN’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into LUN here. View our latest analysis for Lundin Mining
How does LUN’s operating cash flow stack up against its debt?
LUN’s debt level has been constant at around $983.4M over the previous year comprising of short- and long-term debt. At this constant level of debt, LUN currently has $715.3M remaining in cash and short-term investments for investing into the business. Additionally, LUN has produced $363.2M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 36.93%, meaning that LUN’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In LUN’s case, it is able to generate 0.37x cash from its debt capital.
Does LUN’s liquid assets cover its short-term commitments?
At the current liabilities level of $355.6M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 6.77x. However, anything above 3x is considered high and could mean that LUN has too much idle capital in low-earning investments.
Can LUN service its debt comfortably?
With a debt-to-equity ratio of 24.84%, LUN’s debt level may be seen as prudent. This range is considered safe as LUN is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether LUN is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In LUN’s, case, the ratio of 12.09x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
LUN’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. 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 LUN has been performing in the past. I suggest you continue to research Lundin Mining to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for LUN’s future growth? Take a look at our free research report of analyst consensus for LUN’s outlook.
2. Valuation: What is LUN 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 LUN is currently mispriced by the market.
3. 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.
