ASX:PEK Historical Debt Oct 30th 17
Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. These adverse events bring devastation and yet does not absolve the company from its debt. Can PEK pay off what it owes to its debtholder by using only cash from its operational activities? Last year, PEK’s operating cash flow was -0.36x its current debt. This means what PEK 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 PEK’s operations at this point in time.
Can PEK 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, PEK could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We test for PEK’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that PEK does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Can PEK service its debt comfortably?
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 PEK, the debt-to-equity ratio is 40.49%, which indicates that its debt can cause trouble for the company in a downturn but it is still at a manageable level.
Next Steps:
Are you a shareholder? At its current level of cash flow coverage, PEK has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that its financial position may be different. I suggest keeping on top of market expectations for PEK’s future growth on our free analysis platform.
Are you a potential investor? Though short-term liquidity isn’t an issue, PEK’s high debt levels along with poor cash coverage may send potential investors running the other way. But, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of PEK’s track record. As a following step, you should take a look at PEK’s past performance analysis on our free platform to figure out PEK’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.