Can AVL pay its short-term liabilities?
Given zero long-term debt on its balance sheet, Australian Vanadium 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$0.2M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 7.35x. However, anything about 3x may be excessive, since AVL may be leaving too much capital in low-earning investments.
Next Steps:
Given that Australian Vanadium is a relatively low-growth company, not taking advantage of lower cost debt may not be the best strategy. As shareholders, you should try and determine whether this strategy is justified for AVL, and why financial flexibility is needed at this stage in its business cycle. This is only a rough assessment of financial health, and I’m sure AVL has company-specific issues impacting its capital structure decisions. You should continue to research Australian Vanadium to get a better picture of the stock by looking at:
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.