Yahoo Finance What Investors Should Know About Boadicea Resources Ltd’s (ASX:BOA) Financial Strength
Boadicea Resources Ltd (ASX:BOA), 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 BOA will have to follow strict debt obligations which will reduce its financial flexibility. While BOA has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status.
View our latest analysis for Boadicea Resources
Is BOA growing fast enough to value financial flexibility over lower cost of capital?
There are well-known benefits of including debt in capital structure, primarily a lower cost of capital. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. Either BOA does not have access to cheap capital, or it may believe this trade-off is not worth it. This makes sense only if the company has a competitive edge and is growing fast off its equity capital. BOA delivered a negative revenue growth of -19.1%. While its negative growth hardly justifies opting for zero-debt, if the decline sustains, it may find it hard to raise debt at an acceptable cost.
Can BOA pay its short-term liabilities?
Given zero long-term debt on its balance sheet, Boadicea Resources 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. At the current liabilities level of AU$117.2k liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 10.61x. Though, anything above 3x is considered high and could mean that BOA has too much idle capital in low-earning investments.
Next Steps:
Having no debt on the books means BOA has more financial freedom to keep growing at its current fast rate. 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 be different. I admit this is a fairly basic analysis for BOA’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Boadicea Resources to get a better picture of the stock by looking at:
Historical Performance: What has BOA’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.
