ASX:VMC Historical Debt Jan 3rd 18
Can VMC meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, Venus Metals has no solvency issues, which is 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. With current liabilities at A$0.3M, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.23x. For metals and mining companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Next Steps:
Are you a shareholder? As VMC’s revenues are not growing at a fast enough pace, not taking advantage of lower cost debt may not be the best strategy. As an investor, you may want to figure out if there are company-specific reasons for not having any debt, and why financial flexibility is needed at this stage in its business cycle. 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? VMC’s health in terms of financial liquidity should ease potential investors’ concerns. 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 VMC’s financial health. Other important fundamentals need to be considered alongside. For your next step, you should take a look at VMC’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.