Yahoo Finance Is Bushveld Minerals Limited’s (LON:BMN) Balance Sheet Strong Enough To Weather A Storm?
Bushveld Minerals Limited (LON:BMN), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is BMN will have to follow strict debt obligations which will reduce its financial flexibility. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean BMN has outstanding financial strength. I recommend you look at the following hurdles to assess BMN’s financial health.
View our latest analysis for Bushveld Minerals
Is BMN right in choosing financial flexibility over lower cost of capital?
Debt funding can be cheaper than issuing new equity due to lower interest cost on debt. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. BMN’s absence of debt on its balance sheet may be due to lack of access to cheaper capital, or it may simply believe low cost is not worth sacrificing financial flexibility. However, choosing flexibility over capital returns is logical only if it’s a high-growth company.
Does BMN’s liquid assets cover its short-term commitments?
Since Bushveld Minerals 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. 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. Looking at BMN’s most recent UK£18m liabilities, it appears that the company has been able to meet these commitments with a current assets level of UK£62m, leading to a 3.5x current account ratio. However, anything above 3x may be considered excessive by some investors. They might argue BMN is leaving too much capital in low-earning investments.
Next Steps:
BMN is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Moving forward, its financial position may change. This is only a rough assessment of financial health, and I’m sure BMN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Bushveld Minerals to get a better picture of the stock by looking at:
Historical Performance: What has BMN’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
