These two are two nice and easy indictors I like to use and will give you a pretty good indication if a company is about to run into some financial issues.
The first is the interest coverage ratio found in the Stockreport:
This is a measure of how many times a company's earnings before interest and tax (EBIT) can cover its interest expenses. For me anything in high single digits and above is good and anything below this is not great and of concern. If it is negative like this one, it is most likely indicating the stock did not report positive EBIT. This will flow through to profits and EPS and you will be able to see this in the financials of the company in the Stockrport.
And as we can see here by the sea of red and for FY23 this company reported a net-loss and as a result negative EPS. Given the poor financial performance of the company, if is very unlikely they will be able to extend their debt facility and will most likely have to raise equity to help fund the company if they cannot improve their financial performance and generate positive earnings and profits. As of 30th June 2023 they had $1.9m cash on hand and net-debt of $32.6m.
The second thing I look for is positive cash from operating activities which is found in the cash flow statement in the accounts tab. Rather than me trying to explain it I will get Stocko to do it for me:
This is basically how much cash is generated by a company which they can use to invest back into the company, pay down debt, pay dividends etc. If this figure is negative then the company has to rely on retained earnings, debt and/or equity to fund its operations and this is not sustainable for an extended period of time. For the above company in FY23 they reported negative cash from operating activities of $3.4m. It is worth noting that due to the different accounting techniques used to calculate profits and cash flow a company can report a profit but have negative cash from operating activities with this often being an early sign that there is trouble ahead.
Putting all of the…
