ASX:IPT 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 IPT pay off what it owes to its debtholder by using only cash from its operational activities? In the case of IPT, operating cash flow turned out to be 0.02x its debt level over the past twelve months. An annual operating cash flow of less than a tenth of the overall debt raises red flags, although short-term obstacles and business cyclicality may temporarily impact IPT’s ability to generate cash.
Can IPT pay its short-term liabilities?
In addition to debtholders, a company must be able to pay its bills and salaries to keep the business running. During times of unfavourable events, IPT could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We test for IPT’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that IPT 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 IPT 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. For IPT, the debt-to-equity ratio is 16.33%, which means its risk of facing a debt-overhang is very low. We can test if IPT’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings should cover interest by at least three times, therefore reducing concerns when profit is highly volatile. In IPT’s case, its interest is excessively covered by its earnings as the ratio sits at 22.67x. This means lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
Are you a shareholder? Although IPT’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. Furthermore, the company may struggle to meet its near term liabilities should an adverse event occur. Given that IPT’s financial situation may change. You should always be researching market expectations for IPT’s future growth on our free analysis platform.
Are you a potential investor? IPT appears to have maintained 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. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of IPT’s track record. You should continue your analysis by taking a look at IPT’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.