ASX:CDU Historical Debt Nov 15th 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. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. Fortunately, we can test the company’s capacity to pay back its debtholders without summoning any catastrophes by looking at how much cash it generates from its current operations. Last year, CDU’s operating cash flow was 0.12x its current debt. This means, over a tenth of CDU’s near term debt can be covered by its day-to-day cash income, which somewhat reduces its riskiness to its debtholders.
Can CDU meet its short-term obligations with the cash in hand?
What about its other commitments such as payments to suppliers and salaries to its employees? During times of unfavourable events, CDU 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 CDU is unable to meet all of its upcoming commitments with its cash and other short-term assets. While this is not abnormal for companies, as their cash is better invested in the business or returned to investors than lying around, it does bring about some concerns should any unfavourable circumstances arise.
Can CDU service its debt comfortably?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. CDU’s debt-to-equity ratio stands at 53.87%, 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, CDU 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 CDU’s financial situation may change. I recommend researching market expectations for CDU’s future growth on our free analysis platform.
Are you a potential investor? CDU’s large debt ratio on top of poor cash coverage in addition to low liquidity coverage of near-term obligations may scare some investors away intially. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of CDU’s track record. As a following step, you should take a look at CDU’s past performance analysis on our free platform to conclude on CDU’s financial health.
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.