Yahoo Finance Is Paramount Gold Nevada Corp’s (NYSEMKT:PZG) Balance Sheet Strong Enough To Weather A Storm?
Zero-debt allows substantial financial flexibility, especially for small-cap companies like Paramount Gold Nevada Corp (NYSEMKT:PZG), as the company does not have to adhere to strict debt covenants. However, it also faces higher cost of capital given interest cost is generally lower than equity. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean PZG has outstanding financial strength. I will take you through a few basic checks to assess the financial health of companies with no debt.
See our latest analysis for Paramount Gold Nevada
Is PZG right in choosing financial flexibility over lower cost of capital?
Debt funding can be cheaper than issuing new equity due to lower interest cost on debt. But the downside of having debt in a company’s balance sheet is the debtholder’s higher claim on its assets in the case of liquidation, as well as stricter capital management requirements. The lack of debt on PZG’s balance sheet may be because it does not have access to cheap capital, or it may believe this trade-off is not worth it. Choosing financial flexibility over capital returns make sense if PZG is a high-growth company.
Can PZG pay its short-term liabilities?
Given zero long-term debt on its balance sheet, Paramount Gold Nevada has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of US$643k liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$2.1m, leading to a 3.3x current account ratio. However, many consider anything above 3x to be quite high.
Next Steps:
As a high-growth company, it may be beneficial for PZG to have some financial flexibility, hence zero-debt. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. In the future, its financial position may change. Keep in mind I haven’t considered other factors such as how PZG has been performing in the past. I suggest you continue to research Paramount Gold Nevada to get a better picture of the stock by looking at:
Historical Performance: What has PZG’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.
