ASX:ERA Historical Debt Dec 6th 17
Can ERA meet its short-term obligations with the cash in hand?
Since Energy Resources of Australia doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at A$133.3M liabilities, the company has been able to meet these commitments with a current assets level of A$535.2M, leading to a 4.01x current account ratio. Though, anything above 3x is considered high and could mean that ERA has too much idle capital in low-earning investments.
Next Steps:
Are you a shareholder? Since ERA is a low-growth stock in terms of its revenues, being in a zero-debt position isn’t always optimal. As shareholders, you should try and determine whether this strategy is justified for ERA, and whether the company needs financial flexibility at this point in time. You should take a look into a future growth analysis to account for the company’s position.
Are you a potential investor? ERA’s financial health in terms of its liquidity shouldn’t be a concern for potential investors. Though, its low sales growth could hurt returns, meaning there is some benefit to looking at low-cost funding alternatives. This is only a rough assessment of financial health, and I’m sure ERA has company-specific issues impacting its capital structure decisions. For your next step, you should take a look at ERA’s past performance in order to determine for yourself whether its zero-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.