Yahoo Finance What does Beacon Minerals Limited’s (ASX:BCN) Balance Sheet Tell Us About Its Future?
Zero-debt allows substantial financial flexibility, especially for small-cap companies like Beacon Minerals Limited (ASX:BCN), 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. While BCN has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I recommend you look at the following hurdles to assess BCN’s financial health.
See our latest analysis for Beacon Minerals
Is BCN 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. Either BCN 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, BCN’s negative revenue growth of -100.0% hardly justifies opting for zero-debt. If the decline sustains, it may find it hard to raise debt at an acceptable cost.
Can BCN meet its short-term obligations with the cash in hand?
Since Beacon Minerals 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. With current liabilities at AU$247.9k, it appears that the company has been able to meet these obligations given the level of current assets of AU$7.8m, with a current ratio of 31.59x. However, a ratio greater than 3x may be considered as quite high, and some might argue BCN could be holding too much capital in a low-return investment environment.
Next Steps:
BCN 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 BCN’s liquidity needs, this may be its optimal capital structure for the time being. In the future, its financial position may be different. I admit this is a fairly basic analysis for BCN’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Beacon Minerals to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for BCN’s future growth? Take a look at our free research report of analyst consensus for BCN’s outlook.
Historical Performance: What has BCN’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.
