ASX:DRA Historical Debt Dec 21st 17
Can DRA pay its short-term liabilities?
Since Dragon Mining 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 A$9.0M liabilities, it appears that the company has been able to meet these commitments with a current assets level of A$26.0M, leading to a 2.88x current account ratio. Generally, for metals and mining companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Next Steps:
Are you a shareholder? DRA’s soft top-line growth means being in a zero-debt position isn’t always optimal. Shareholders should understand why the company isn’t opting for cheaper cost of capital to fund future growth, and whether the company needs financial flexibility at this point in time. You should take a look into a future growth analysis to account for what the market expects for the company moving forward.
Are you a potential investor? DRA’s management of short term liabilities is strong. However, its soft revenue growth could hurt returns, meaning there is some benefit to looking at low-cost funding alternatives. I admit this is a fairly basic analysis for DRA’s financial health. Other important fundamentals need to be considered alongside. I encourage you to continue your research by taking a look at DRA’s past performance in order to determine for yourself whether its zero-debt position is justified.
To help readers see pass 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.