ASX:VAN Historical Debt Oct 20th 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. We can test the impact of these adverse events by looking at whether cash from its current operations can pay back its current debt obligations. VAN’s recent operating cash flow was -0.29 times its debt within the past year. This means what VAN 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 VAN’s operations at this point in time.
Does VAN’s liquid assets cover its short-term commitments?
In addition to debtholders, a company must be able to pay its bills and salaries to keep the business running. As cash flow from operation is hindered by adverse events, VAN may need to liquidate its short-term assets to meet these upcoming payments. We test for VAN’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that VAN 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.
Does VAN 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. In the case of VAN, the debt-to-equity ratio is over 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? With a high level of debt on its balance sheet, VAN could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for VAN to increase its 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 change. You should always be keeping abreast of market expectations for VAN’s future growth on our free analysis platform.
Are you a potential investor? VAN’s high debt levels along with low cash coverage of debt in addition to low liquidity coverage of near-term expenses 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 VAN’s track record. You should continue your analysis by taking a look at VAN’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.