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. Can PGD pay off what it owes to its debtholder by using only cash from its operational activities? Last year, PGD’s operating cash flow was -7.37x its current debt. This means what PGD 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 PGD’s operations at this point in time.

Can PGD pay its short-term liabilities?

What about its other commitments such as payments to suppliers and salaries to its employees? As cash flow from operation is hindered by adverse events, PGD may need to liquidate its short-term assets to meet these upcoming payments. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that PGD 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 PGD service its debt comfortably?

A substantially higher debt poses a significant threat to a company’s profitability during a downturn. In the case of PGD, the debt-to-equity ratio is 12.91%, which means its risk of facing a debt-overhang is very low. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings at least three times its interest payments is considered financially sound. PGD’s interest on debt is sufficiently covered by earnings as it sits at around 296.19x. This means lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

Are you a shareholder? PGD’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. Given that PGD’s financial situation may change. You should always be keeping abreast of market expectations for PGD’s future growth on our free analysis platform.