ASX:TKL Historical Debt Dec 6th 17
Does TKL’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, Traka Resources has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of A$0.0M liabilities, the company has been able to meet these commitments with a current assets level of A$0.9M, leading to a 20.71x current account ratio. However, anything above 3x is considered high and could mean that TKL has too much idle capital in low-earning investments.
Next Steps:
Are you a shareholder? TKL’s soft top-line growth means not having any low-cost debt funding may not be optimal for the business. Shareholders should understand why the company isn’t opting for cheaper cost of capital to fund future growth, and whether the company needs financial flexibility at this point in time. I recommend taking a look into a future growth analysis to properly assess the company’s position.
Are you a potential investor? TKL’s health in terms of financial liquidity should ease potential investors’ concerns. Though, its low sales growth means there’s potential to improve return on capital by taking on some debt and ramp up growth. This is only a rough assessment of financial health, and I’m sure TKL has company-specific issues impacting its capital structure decisions. I encourage you to continue your research by taking a look at TKL’s past performance in order to determine for yourself whether its zero-debt position is justified.
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The author is an independent contributor and at the time of publication had no position in the stocks mentioned.