ASX:ROG Historical Debt Nov 8th 17
Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. These catastrophes does not mean the company can stop servicing its debt obligations. Can ROG pay off what it owes to its debtholder by using only cash from its operational activities? In the case of ROG, operating cash flow turned out to be -0.46x its debt level over the past twelve months. This means what ROG can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at ROG’s operations at this point in time.
Can ROG pay its short-term liabilities?
What about its other commitments such as payments to suppliers and salaries to its employees? During times of unfavourable events, ROG 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 ROG 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 ROG face the risk of succumbing to its debt-load?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. For ROG, the debt-to-equity ratio stands at above 100%, which means that it is a highly leveraged company. This is not a problem if the company has consistently grown its profits. But during a business downturn, as liquidity may dry up, making it hard to operate.
Next Steps:
Are you a shareholder? ROG’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 struggle to meet its near term liabilities should an adverse event occur. Moving forward, its financial position may be different. I recommend researching market expectations for ROG’s future growth on our free analysis platform.
Are you a potential investor? ROG’s high debt levels along with low cash coverage of debt as well as low liquidity coverage of near-term commitments may send potential investors running the other way. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of ROG’s track record. As a following step, you should take a look at ROG’s past performance analysis on our free platform to conclude on ROG’s financial health.
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.