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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Alumina Limited (ASX:AWC), with a market cap of AU$6.9b, are often out of the spotlight. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. Today we will look at AWC’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 AWC here.
Does AWC Produce Much Cash Relative To Its Debt?
Over the past year, AWC has maintained its debt levels at around US$107m including long-term debt. At this stable level of debt, AWC currently has US$184m remaining in cash and short-term investments to keep the business going. On top of this, AWC has produced US$641m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 599%, signalling that AWC’s operating cash is sufficient to cover its debt.
Does AWC’s liquid assets cover its short-term commitments?
At the current liabilities level of US$109m, it appears that the company has been able to meet these obligations given the level of current assets of US$185m, with a current ratio of 1.7x. The current ratio is calculated by dividing current assets by current liabilities. 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 AWC service its debt comfortably?
AWC’s level of debt is low relative to its total equity, at 5.0%. This range is considered safe as AWC is not taking on too much debt obligation, which may be constraining for future growth.
AWC has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for AWC's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Alumina to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AWC’s future growth? Take a look at our free research report of analyst consensus for AWC’s outlook.
- Valuation: What is AWC 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 AWC 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 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.