Mincor Resources NL (ASX:MCR): Financial Strength Analysis
Mincor Resources NL (ASX:MCR), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is MCR will have to follow strict debt obligations which will reduce its financial flexibility. While MCR has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I’ve put together a small checklist, which I believe provides a ballpark estimate of their financial health status. See our latest analysis for MCR
Is MCR right in choosing financial flexibility over lower cost of capital?
There are well-known benefits of including debt in capital structure, primarily a lower cost of capital. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. The lack of debt on MCR’s balance sheet may be because it does not have access to cheap capital, or it may believe this trade-off is not worth it. Choosing financial flexibility over capital returns make sense if MCR is a high-growth company.
Can MCR meet its short-term obligations with the cash in hand?
What about its other commitments such as payments to suppliers and salaries to its employees? In times of adverse events, MCR may need to liquidate its short-term assets to pay these immediate obligations. We test for MCR’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that MCR does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Next Steps:
Are you a shareholder? As a high-growth company, it may be beneficial for MCR to have some financial flexibility, hence zero-debt. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Going forward, its financial position may change. I suggest keeping on top of market expectations for MCR’s future growth.
Are you a potential investor? Mincor Resources NL is a fast-growing company, making financial flexibility a valuable option for the company. Moreover, its high liquidity means the company should continue to operate smoothly in the case of adverse events. In order to build your confidence in the stock, you need to also examine MCR’s track record. You should continue your analysis by taking a look at MCR’s past performance to figure out MCR’s financial health position.
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.
