TSXV:PBR Historical Debt Nov 18th 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. PBR’s recent operating cash flow was -0.2 times its debt within the past year. This means what PBR 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 PBR’s operations at this point in time.
Can PBR pay its short-term liabilities?
What about its other commitments such as payments to suppliers and salaries to its employees? In times of adverse events, PBR may need to liquidate its short-term assets to pay these immediate obligations. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that PBR does not have enough liquid assets on hand to meet its upcoming liabilities. Though this is a common practice, since cash is better utilized invested in the business or returned to shareholders, it does raise some concerns for investors should adverse events arise.
Can PBR 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. In the case of PBR, the debt-to-equity ratio is over 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? PBR’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. In the future, PBR’s financial situation may change. You should always be researching market expectations for PBR’s future growth on our free analysis platform.
Are you a potential investor? PBR’s large debt ratio along with poor cash coverage in addition to low liquidity coverage of short-term expenses may scare some investors away intially. But, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of PBR’s track record. I encourage you to continue your research by taking a look at PBR’s past performance analysis on our free platform to figure out PBR’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.