ASX:MOD Historical Debt Nov 17th 17
More Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. 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. In the case of MOD, operating cash flow turned out to be -1.92x its debt level over the past twelve months. This means what MOD 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 MOD’s operations at this point in time.
Can MOD pay its short-term liabilities? What about its other commitments such as payments to suppliers and salaries to its employees? During times of unfavourable events, MOD could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that MOD does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Is MOD’s level of debt at an acceptable level? Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. For MOD, the debt-to-equity ratio is 3.17%, which means debt is low and does not pose any significant threat to the company’s operations. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings at least three times its interest payments is considered financially sound. MOD’s interest on debt is sufficiently covered by earnings as it sits at around 36.35x. Debtors may be willing to loan the company more money, giving MOD ample headroom to grow its debt facilities.
Next Steps: Are you a shareholder? Although MOD’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. 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 change. I suggest researching market expectations for MOD’s future growth on our free analysis platform .
Are you a potential investor? MOD Resources currently has financial flexibility to ramp up growth in the future. Moreover, its high liquidity means the company should continue to operate smoothly in the case of adverse events. In order to build your confidence in the stock, you need to further analyse the company’s track record. I encourage you to continue your research by taking a look at MOD’s past performance analysis on our free platform to figure out MOD’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.