Yahoo Finance Is Alumina Limited’s (ASX:AWC) Liquidity Good Enough?
Mid-caps stocks, like Alumina Limited (ASX:AWC) with a market capitalization of AU$7.7b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. 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 AWC’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 AWC here.
See our latest analysis for Alumina
How does AWC’s operating cash flow stack up against its debt?
AWC’s debt levels have fallen from US$122m to US$106m over the last 12 months , which comprises of short- and long-term debt. With this debt payback, AWC’s cash and short-term investments stands at US$38m , ready to deploy into the business. Moreover, AWC has produced cash from operations of US$441m during the same period of time, resulting in an operating cash to total debt ratio of 415%, indicating that AWC’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AWC’s case, it is able to generate 4.15x cash from its debt capital.
Can AWC meet its short-term obligations with the cash in hand?
At the current liabilities level of US$2m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$39m, with a current ratio of 24.44x. Having said that, many consider anything above 3x to be quite high and could mean that AWC has too much idle capital in low-earning investments.
Can AWC service its debt comfortably?
With debt at 5.1% of equity, AWC may be thought of as having low leverage. AWC is not taking on too much debt commitment, which may be constraining for future growth.
Next Steps:
AWC has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for AWC’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Alumina to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AWC’s future growth? Take a look at our free research report of analyst consensus for AWC’s outlook.
Valuation: What is AWC 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 AWC 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.
