Yahoo Finance Is Ausmex Mining Group Limited (ASX:AMG) A Financially Sound Company?
Ausmex Mining Group Limited (ASX:AMG), 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 AMG 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 AMG has outstanding financial strength. I recommend you look at the following hurdles to assess AMG’s financial health.
View our latest analysis for Ausmex Mining Group
Is AMG right in choosing financial flexibility over lower cost of capital?
There are well-known benefits of including debt in capital structure, primarily a lower cost of capital. 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. AMG’s absence of debt on its balance sheet may be due to lack of access to cheaper capital, or it may simply believe low cost is not worth sacrificing financial flexibility. However, choosing flexibility over capital returns is logical only if it’s a high-growth company.
Can AMG meet its short-term obligations with the cash in hand?
Since Ausmex Mining Group 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. 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. Looking at AMG’s most recent AU$289k liabilities, the company has been able to meet these commitments with a current assets level of AU$2m, leading to a 7.5x current account ratio. However, anything above 3x may be considered excessive by some investors.
Next Steps:
AMG is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. Since there is also no concerns around AMG’s liquidity needs, this may be its optimal capital structure for the time being. In the future, AMG’s financial situation may change. Keep in mind I haven’t considered other factors such as how AMG has been performing in the past. I suggest you continue to research Ausmex Mining Group to get a more holistic view of the stock by looking at:
Historical Performance: What has AMG’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.
