Yahoo Finance Are Anatara Lifesciences Limited’s (ASX:ANR) Interest Costs Too High?
Anatara Lifesciences Limited (ASX:ANR), 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 ANR will have to follow strict debt obligations which will reduce its financial flexibility. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean ANR has outstanding 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.
Check out our latest analysis for Anatara Lifesciences
Is ANR growing fast enough to value financial flexibility over lower cost of capital?
Debt funding can be cheaper than issuing new equity due to lower interest cost on debt. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. Either ANR 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. Opposite to the high growth we were expecting, ANR’s negative revenue growth of -45% hardly justifies opting for zero-debt. If the decline sustains, it may find it hard to raise debt at an acceptable cost.
Does ANR’s liquid assets cover its short-term commitments?
Since Anatara Lifesciences doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term 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. Looking at ANR’s AU$652k in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 12.08x. Having said that, a ratio above 3x may be considered excessive by some investors.
Next Steps:
Having no debt on the books means ANR has more financial freedom to keep growing at its current fast rate. Since there is also no concerns around ANR’s liquidity needs, this may be its optimal capital structure for the time being. Going forward, ANR’s financial situation may change. I admit this is a fairly basic analysis for ANR’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Anatara Lifesciences to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ANR’s future growth? Take a look at our free research report of analyst consensus for ANR’s outlook.
Valuation: What is ANR 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 ANR 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.
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