ASX:ATU Historical Debt Nov 7th 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. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. Can ATU pay off what it owes to its debtholder by using only cash from its operational activities? In the case of ATU, operating cash flow turned out to be -2.48x its debt level over the past twelve months. This means what ATU 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 ATU’s operations at this point in time.
Can ATU pay its short-term liabilities?
What about its commitments to other stakeholders such as payments to suppliers and employees? During times of unfavourable events, ATU could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We test for ATU’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that ATU is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Is ATU’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. In the case of ATU, the debt-to-equity ratio is 54.34%, which means, while the company’s debt could pose a problem for its earnings stability, it is not at an alarmingly high level yet.
Next Steps:
Are you a shareholder? ATU’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may be different. I recommend researching market expectations for ATU’s future growth on our free analysis platform.
Are you a potential investor? Though near-term liquidity isn’t a concern, ATU’s large debt ratio along with poor cash coverage 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 ATU’s track record. As a following step, you should take a look at ATU’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.