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Stocks with market capitalization between $2B and $10B, such as Northern Star Resources Limited (ASX:NST) with a size of AU$6.7b, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Today we will look at NST’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into NST here.
NST’s Debt (And Cash Flows)
NST's debt levels surged from AU$12m to AU$42m over the last 12 months , which is mainly comprised of near term debt. With this increase in debt, NST's cash and short-term investments stands at AU$230m , ready to be used for running the business. Additionally, NST has generated AU$395m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 951%, meaning that NST’s operating cash is sufficient to cover its debt.
Can NST meet its short-term obligations with the cash in hand?
With current liabilities at AU$219m, the company has been able to meet these obligations given the level of current assets of AU$408m, with a current ratio of 1.87x. The current ratio is calculated by dividing current assets by current liabilities. For Metals and Mining companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Does NST face the risk of succumbing to its debt-load?
NST’s level of debt is low relative to its total equity, at 4.0%. This range is considered safe as NST is not taking on too much debt obligation, which may be constraining for future growth.
NST has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure NST has company-specific issues impacting its capital structure decisions. I recommend you continue to research Northern Star Resources to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NST’s future growth? Take a look at our free research report of analyst consensus for NST’s outlook.
- Valuation: What is NST 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 NST 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.