Yahoo Finance Is Newcrest Mining Limited (ASX:NCM) A Financially Strong Company?
With a market capitalization of AU$16b, Newcrest Mining Limited (ASX:NCM) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high liquidity, which means there’s plenty of stocks available to the public for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Assessing the most recent data for NCM, I will take you through the key ratios to measure financial health, in particular, its solvency and liquidity.
See our latest analysis for Newcrest Mining
Does NCM produce enough cash relative to debt?
Over the past year, NCM has maintained its debt levels at around US$2.0b – this includes long-term debt. At this current level of debt, NCM currently has US$953m remaining in cash and short-term investments , ready to deploy into the business. On top of this, NCM has generated cash from operations of US$1.4b in the last twelve months, leading to an operating cash to total debt ratio of 72%, meaning that NCM’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In NCM’s case, it is able to generate 0.72x cash from its debt capital.
Does NCM’s liquid assets cover its short-term commitments?
With current liabilities at US$651m, it appears that the company has been able to meet these obligations given the level of current assets of US$1.7b, with a current ratio of 2.57x. For Metals and Mining companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does NCM face the risk of succumbing to its debt-load?
With debt at 27% of equity, NCM may be thought of as appropriately levered. This range is considered safe as NCM is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether NCM is able to meet its debt obligations by looking at the net interest coverage ratio. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. In NCM’s case, the ratio of 5.44x suggests that interest is well-covered. Strong interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as NCM is a safe investment.
Next Steps:
NCM’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure NCM has company-specific issues impacting its capital structure decisions. I recommend you continue to research Newcrest Mining to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for NCM’s future growth? Take a look at our free research report of analyst consensus for NCM’s outlook.
Valuation: What is NCM 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 NCM 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.
