Yahoo Finance Is PrairieSky Royalty Ltd’s (TSE:PSK) Liquidity Good Enough?
Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as PrairieSky Royalty Ltd (TSX:PSK), with a market cap of CA$6.19B, often get neglected by retail investors. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at PSK’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into PSK here. Check out our latest analysis for PrairieSky Royalty
Is PSK’s debt level acceptable?
A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. Generally, mid-cap stocks are considered financially healthy if its ratio is below 40%. For PSK, the debt-to-equity ratio is zero, meaning that the company has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors’ risk associated with debt is virtually non-existent with PSK, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does PSK’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, PrairieSky Royalty 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$43.00M, it seems that the business has been able to meet these commitments with a current assets level of CA$88.70M, leading to a 2.06x current account ratio. Generally, for Oil and Gas companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Next Steps:
PSK has no debt as well as ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and shareholders, however, some level of debt could also boost earnings growth and operational efficiency. I admit this is a fairly basic analysis for PSK’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research PrairieSky Royalty to get a more holistic view of the stock by looking at:
Valuation: What is PSK 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 PSK is currently mispriced by the market.
Historical Performance: What has PSK’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.