What Investors Should Know About Weatherly International PLC’s (AIM:WTI) Financial Strength

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While failure to manage cash has been one of the major reasons behind the demise of a lot of small businesses, mismanagement comes into the light during tough situations such as an economic recession. These adverse events bring devastation and yet does not absolve the company from its debt. Can WTI pay off what it owes to its debtholder by using only cash from its operational activities? Last year, WTI’s operating cash flow was 0.14x its current debt. This means, over a tenth of WTI’s near term debt can be covered by its day-to-day cash income, which somewhat reduces its riskiness to its debtholders.

Does WTI’s liquid assets cover its short-term commitments?

What about its other commitments such as payments to suppliers and salaries to its employees? During times of unfavourable events, WTI could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that WTI does not have enough liquid assets on hand to meet its upcoming liabilities. Though this is a common practice, since cash is better utilized invested in the business or returned to shareholders, it does raise some concerns for investors should adverse events arise.

Does WTI face the risk of succumbing to its debt-load?

Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. For WTI, the debt-to-equity ratio stands at above 100%, which indicates that the company is holding a high level of debt relative to its net worth. In the event of financial turmoil, the company may experience difficulty meeting interest and other debt obligations. While debt-to-equity ratio has several factors at play, an easier way to check whether WTI’s leverage is at a sustainable level is to check its ability to service the debt. A company generating earnings at least three times its interest payments is considered financially sound. WTI’s interest on debt is not strongly covered by earnings as it sits at around 0.25x. Lenders may be more reluctant to lend out more funding as WTI’s low interest coverage already puts the company at higher risk of default.

Next Steps:

Are you a shareholder? WTI’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. In the future, its financial position may change. I suggest keeping abreast of market expectations for WTI’s future growth on our free analysis platform.