ASX:AQD Historical Debt Nov 17th 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 AQD pay off what it owes to its debtholder by using only cash from its operational activities? In the case of AQD, operating cash flow turned out to be -0.06x its debt level over the past twelve months. This means what AQD 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 AQD’s operations at this point in time.
Does AQD’s liquid assets cover its short-term commitments?
What about its other commitments such as payments to suppliers and salaries to its employees? In times of adverse events, AQD may need to liquidate its short-term assets to pay these immediate obligations. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that AQD 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.
Can AQD service its debt comfortably?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. For AQD, the debt-to-equity ratio is 20.96%, which means its risk of facing a debt-overhang is very low.
Next Steps:
Are you a shareholder? AQD’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. Given that AQD’s financial situation may change. I suggest keeping on top of market expectations for AQD’s future growth on our free analysis platform.
Are you a potential investor? AQD seems to have a sensible level of debt, meaning there’s some room to take on more debt if needed. But its current cash flow coverage of existing debt, in addition to the low liquidity, is concerning. However, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of AQD’s track record. I encourage you to continue your research by taking a look at AQD’s past performance analysis on our free platform to figure out AQD’s financial health position.
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.