Yahoo Finance How Financially Strong Is Eldorado Gold Corporation (TSE:ELD)?
Eldorado Gold Corporation (TSE:ELD) is a small-cap stock with a market capitalization of CA$910m. 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 ELD is loss-making right now, it’s essential to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into ELD here.
How does ELD’s operating cash flow stack up against its debt?
Over the past year, ELD has maintained its debt levels at around US$595m made up of current and long term debt. At this constant level of debt, ELD’s cash and short-term investments stands at US$434m for investing into the business. Moreover, ELD has generated US$68m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 11%, indicating that ELD’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In ELD’s case, it is able to generate 0.11x cash from its debt capital.
Does ELD’s liquid assets cover its short-term commitments?
With current liabilities at US$93m, it appears that the company has been able to meet these obligations given the level of current assets of US$665m, with a current ratio of 7.19x. Having said that, a ratio greater than 3x may be considered as quite high, and some might argue ELD could be holding too much capital in a low-return investment environment.
Does ELD face the risk of succumbing to its debt-load?
With debt at 16% of equity, ELD may be thought of as appropriately levered. This range is considered safe as ELD is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. ELD’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
ELD’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how ELD has been performing in the past. I suggest you continue to research Eldorado Gold to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ELD’s future growth? Take a look at our free research report of analyst consensus for ELD’s outlook.
Historical Performance: What has ELD’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 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.
