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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Mineral Resources Limited (ASX:MIN), with a market capitalization of AU$3.3b, rarely draw their attention from the investing community. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. This article will examine MIN’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into MIN here.
How much cash does MIN generate through its operations?
MIN’s debt levels have fallen from AU$275m to AU$239m over the last 12 months , which includes long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at AU$240m , ready to deploy into the business. Moreover, MIN has generated cash from operations of AU$411m over the same time period, leading to an operating cash to total debt ratio of 172%, meaning that MIN’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In MIN’s case, it is able to generate 1.72x cash from its debt capital.
Does MIN’s liquid assets cover its short-term commitments?
With current liabilities at AU$375m, it appears that the company has been able to meet these commitments with a current assets level of AU$523m, leading to a 1.39x current account ratio. For Metals and Mining companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can MIN service its debt comfortably?
MIN’s level of debt is appropriate relative to its total equity, at 18%. MIN is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether MIN 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 MIN’s, case, the ratio of 50.72x 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.
MIN’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 proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for MIN’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Mineral Resources to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MIN’s future growth? Take a look at our free research report of analyst consensus for MIN’s outlook.
- Valuation: What is MIN 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 MIN is currently mispriced by the market.
- 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 firstname.lastname@example.org. 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. On rare occasion, data errors may occur. Thank you for reading.