Yahoo Finance Is Endeavour Mining Corporation’s (TSE:EDV) Balance Sheet A Threat To Its Future?
Endeavour Mining Corporation (TSE:EDV) is a small-cap stock with a market capitalization of CA$2.02b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since EDV is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into EDV here.
How does EDV’s operating cash flow stack up against its debt?
EDV’s debt levels surged from US$254.9m to US$479.3m over the last 12 months – this includes both the current and long-term debt. With this rise in debt, EDV’s cash and short-term investments stands at US$85.1m , ready to deploy into the business. On top of this, EDV has generated cash from operations of US$245.5m in the last twelve months, resulting in an operating cash to total debt ratio of 51.2%, meaning that EDV’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In EDV’s case, it is able to generate 0.51x cash from its debt capital.
Does EDV’s liquid assets cover its short-term commitments?
At the current liabilities level of US$249.7m liabilities, the company has been able to meet these obligations given the level of current assets of US$425.3m, with a current ratio of 1.7x. For Metals and Mining companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can EDV service its debt comfortably?
With a debt-to-equity ratio of 47.2%, EDV can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since EDV is currently loss-making, there’s a question of sustainability of its current operations. 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:
EDV’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for EDV’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Endeavour Mining to get a more holistic view of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for EDV’s future growth? Take a look at our free research report of analyst consensus for EDV’s outlook.
Valuation: What is EDV 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 EDV 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.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
