ASX:REZ Historical Debt Nov 15th 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 catastrophes does not mean the company can stop servicing its debt obligations. 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. REZ’s recent operating cash flow was -0.51 times its debt within the past year. This means what REZ 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 REZ’s operations at this point in time.
Can REZ pay its short-term liabilities?
What about its commitments to other stakeholders such as payments to suppliers and employees? As cash flow from operation is hindered by adverse events, REZ may need to liquidate its short-term assets to meet these upcoming payments. We test for REZ’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that REZ 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 REZ 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. For REZ, the debt-to-equity ratio stands at above 100%, which means that it is a highly leveraged company. This is not a problem if the company has consistently grown its profits. But during a business downturn, as liquidity may dry up, making it hard to operate.
Next Steps:
Are you a shareholder? REZ’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, the company may struggle to meet its near term liabilities should an adverse event occur. Moving forward, REZ’s financial situation may change. You should always be keeping on top of market expectations for REZ’s future growth on our free analysis platform.
Are you a potential investor? REZ’s large debt ratio on top of poor cash coverage in addition to low liquidity coverage of near-term commitments may send potential investors running the other way. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of REZ’s track record. You should continue your analysis by taking a look at REZ’s past performance analysis on our free platform to figure out REZ’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.