Yahoo Finance What You Must Know About Altura Energy Inc.’s (CVE:ATU) Financial Strength
Altura Energy Inc. (CVE:ATU), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is ATU will have to follow strict debt obligations which will reduce its financial flexibility. While ATU has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status.
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Is ATU growing fast enough to value financial flexibility over lower cost of capital?
Debt capital generally has lower cost of capital compared to equity funding. Though, the trade-offs are that lenders require stricter capital management requirements, in addition to having a higher claim on company assets relative to shareholders. Either ATU does not have access to cheap capital, or it may believe this trade-off is not worth it. This makes sense only if the company has a competitive edge and is growing fast off its equity capital. A single-digit revenue growth of 8.4% for ATU is considerably low for a small-cap company. More capital can help the business grow faster. If ATU is not expecting exceptional future growth, then the decision to avoid may cost shareholders in the long term.
Can ATU pay its short-term liabilities?
Given zero long-term debt on its balance sheet, Altura Energy has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at CA$7.2m, it appears that the company may not have an easy time meeting these commitments with a current assets level of CA$5.3m, leading to a current ratio of 0.74x.
Next Steps:
As a high-growth company, it may be beneficial for ATU to have some financial flexibility, hence zero-debt. However, its lack of liquidity lowers our confidence around meeting short-term obligations. Some level of low-cost debt funding could help address these needs. Going forward, ATU’s financial situation may change. Keep in mind I haven’t considered other factors such as how ATU has been performing in the past. I suggest you continue to research Altura Energy to get a more holistic view of the stock by looking at:
Historical Performance: What has ATU’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.
