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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Evolution Mining Limited (ASX:EVN), with a market capitalization of AU$5.47B, rarely draw their attention from the investing community. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. This article will examine EVN’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into EVN here. View our latest analysis for Evolution Mining
How does EVN’s operating cash flow stack up against its debt?
Over the past year, EVN has ramped up its debt from AU$296.46M to AU$436.12M – this includes both the current and long-term debt. With this growth in debt, EVN currently has AU$37.39M remaining in cash and short-term investments for investing into the business. Additionally, EVN has generated cash from operations of AU$650.80M during the same period of time, leading to an operating cash to total debt ratio of 149.22%, meaning that EVN’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In EVN’s case, it is able to generate 1.49x cash from its debt capital.
Can EVN meet its short-term obligations with the cash in hand?
At the current liabilities level of AU$279.62M liabilities, the company has been able to meet these obligations given the level of current assets of AU$377.37M, with a current ratio of 1.35x. Usually, for Metals and Mining companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is EVN’s debt level acceptable?
EVN’s level of debt is appropriate relative to its total equity, at 17.88%. EVN is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether EVN is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In EVN’s, case, the ratio of 11.25x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving EVN ample headroom to grow its debt facilities.