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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Centerra Gold Inc. (TSE:CG) with a market-capitalization of CA$2.8b, rarely draw their attention. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Today we will look at CG’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 CG here.
CG’s Debt (And Cash Flows)
Over the past year, CG has reduced its debt from US$346m to US$189m , which includes long-term debt. With this reduction in debt, CG's cash and short-term investments stands at US$180m , ready to be used for running the business. On top of this, CG has generated US$376m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 199%, signalling that CG’s debt is appropriately covered by operating cash.
Does CG’s liquid assets cover its short-term commitments?
At the current liabilities level of US$273m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.12x. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Does CG face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 7.4%, CG's debt level is relatively low. CG is not taking on too much debt commitment, which may be constraining for future growth. We can test if CG’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For CG, the ratio of 8.22x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving CG ample headroom to grow its debt facilities.
CG 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 CG's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Centerra Gold to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CG’s future growth? Take a look at our free research report of analyst consensus for CG’s outlook.
- Valuation: What is CG 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 CG 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.