TSXV:ALI Historical Debt Nov 16th 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. Can ALI pay off what it owes to its debtholder by using only cash from its operational activities? Last year, ALI’s operating cash flow exceeded its debt obligations, which means ALI generates enough money in a year through its operations to pay off its near-term debt. Hence, debt poses a virtually insignificant risk for the company. This is great news for both debtholders and shareholders, as the company exhibits cautious cash and debt management.
Can ALI meet its short-term obligations with the cash in hand?
What about its commitments to other stakeholders such as payments to suppliers and employees? During times of unfavourable events, ALI could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We test for ALI’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that ALI 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.
Is ALI’s level of debt at an acceptable level?
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. ALI’s debt-to-equity ratio stands at 2.04%, which means debt is low and does not pose any significant threat to the company’s operations.
Next Steps:
Are you a shareholder? ALI has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. But, as shareholders, you should try and determine whether this level of debt is justified for ALI, especially when liquidity may also be an issue. You should take a look at ALI’s future growth analysis on our free platform. to properly assess the company’s position in further detail.
Are you a potential investor? Although ALI’s debt level is relatively low, it has the ability to efficiently utilise its borrowings to generate ample cash flow coverage. Although, should adverse events arise, its low liquidity raises concerns over whether short term obligations can be met in time. I encourage you to continue your research by taking a look at ALI’s past performance analysis on our free platform to figure out ALI’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.