Is Sirius Minerals Plc (LON:SXX) A Financially Sound Company?
Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Sirius Minerals Plc (LSE:SXX) with a market-capitalization of UK£1.49B, rarely draw their attention. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Today we will look at SXX’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 commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into SXX here. See our latest analysis for Sirius Minerals
Does SXX generate an acceptable amount of cash through operations?
SXX has shrunken its total debt levels in the last twelve months, from UK£321.37M to UK£249.33M , which is mainly comprised of near term debt. With this reduction in debt, the current cash and short-term investment levels stands at UK£393.98M for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of SXX’s operating efficiency ratios such as ROA here.
Does SXX’s liquid assets cover its short-term commitments?
With current liabilities at UK£289.04M, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.46x. Usually, for Chemicals companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can SXX service its debt comfortably?
With a debt-to-equity ratio of 49.36%, SXX can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. But since SXX is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
At its current level of cash flow coverage, SXX has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure SXX has company-specific issues impacting its capital structure decisions. I recommend you continue to research Sirius Minerals to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SXX’s future growth? Take a look at our free research report of analyst consensus for SXX’s outlook.
Historical Performance: What has SXX’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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.
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.
