ASX:VAR Historical Debt Dec 26th 17
Can VAR pay its short-term liabilities?
Given zero long-term debt on its balance sheet, Variscan Mines has no solvency issues, which is 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. At the current liabilities level of A$0.8M 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 2.07x. Usually, for metals and mining companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Next Steps:
Are you a shareholder? VAR’s soft top-line growth means having no debt on its balance sheet isn’t necessarily the best thing. Shareholders should understand why the company isn’t opting for cheaper cost of capital to fund future growth, and why financial flexibility is needed at this stage in its business cycle. I suggest you take a look into a future growth analysis to examine what the market expects for the company moving forward.
Are you a potential investor? VAR’s financial health in terms of its liquidity shouldn’t be a concern for potential investors. Though, its low sales growth could hurt returns, meaning there is some benefit to looking at low-cost funding alternatives. This is only a rough assessment of financial health, and I’m sure VAR has company-specific issues impacting its capital structure decisions. For your next step, you should take a look at VAR’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.