ASX:BLK Historical Debt Oct 26th 17
There are many headwinds that come unannounced, such as natural disasters and political turmoil, which can challenge a small business and its ability to adapt and recover. These catastrophes does not mean the company can stop servicing its debt obligations. Can BLK pay off what it owes to its debtholder by using only cash from its operational activities? In the case of BLK, operating cash flow turned out to be 0.62x its debt level over the past twelve months. This is a good sign, as over half of BLK’s near term debt can be covered by its day-to-day cash income, which reduces its riskiness to its debtholders.
Can BLK meet its short-term obligations with the cash in hand?
What about its other commitments such as payments to suppliers and salaries to its employees? During times of unfavourable events, BLK could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We test for BLK’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that BLK is unable to meet all of its upcoming commitments with its cash and other short-term assets. While this is not abnormal for companies, as their cash is better invested in the business or returned to investors than lying around, it does bring about some concerns should any unfavourable circumstances arise.
Is BLK’s level of debt at an acceptable level?
While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. BLK’s debt-to-equity ratio stands at 45.90%, which indicates that its debt can cause trouble for the company in a downturn but it is still at a manageable level.
Next Steps:
Are you a shareholder? Although BLK’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. But, its lack of liquidity means the company may be pressed to meet its short-term obligations, and increasing debt funding to meet these needs could prove difficult. Going forward, its financial position may change. You should always be keeping on top of market expectations for BLK’s future growth on our free analysis platform.
Are you a potential investor? Investors shouldn’t be put off by BLK’s high debt levels based on this simple analysis. High level of cash generated from operating activities indicates its debt funding is being effectively used. However, the company may struggle to meet its near term liabilities should an adverse event occur. In order to build your conviction in the stock, you need to further examine BLK’s track record. You should continue your analysis by taking a look at BLK’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.