AIM:MTL Historical Debt Nov 6th 17
While failure to manage cash has been one of the major reasons behind the demise of a lot of small businesses, mismanagement comes into the light during tough situations such as an economic recession. 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 MTL, operating cash flow turned out to be -0.13x its debt level over the past twelve months. This means what MTL 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 MTL’s operations at this point in time.
Does MTL’s liquid assets cover its short-term commitments?
What about its commitments to other stakeholders such as payments to suppliers and employees? As cash flow from operation is hindered by adverse events, MTL may need to liquidate its short-term assets to meet these upcoming payments. We test for MTL’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that MTL 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 MTL service its debt comfortably?
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 MTL, the debt-to-equity ratio is 59.84%, 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? At its current level of cash flow coverage, MTL has room for improvement to better cushion for events which may require debt repayment. Furthermore, the company may struggle to meet its near term liabilities should an adverse event occur. Given that its financial position may change. I recommend keeping abreast of market expectations for MTL’s future growth on our free analysis platform.
Are you a potential investor? MTL’s high debt levels on top of low cash coverage of debt in addition to low liquidity coverage of near-term commitments may not be what you’re after in an investment. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of MTL’s track record. You should continue your analysis by taking a look at MTL’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.