Yahoo Finance What Investors Should Know About AnalytixInsight Inc’s (CVE:ALY) Financial Strength
AnalytixInsight Inc (CVE:ALY), which has zero-debt on its balance sheet, can maximize capital returns by increasing debt due to its lower cost of capital. However, the trade-off is ALY will have to follow strict debt obligations which will reduce its financial flexibility. While ALY has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I will take you through a few basic checks to assess the financial health of companies with no debt.
Check out our latest analysis for AnalytixInsight
Does ALY’s growth rate justify its decision for financial flexibility over lower cost of capital?
There are well-known benefits of including debt in capital structure, primarily a lower cost of capital. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. The lack of debt on ALY’s balance sheet may be because it does not have access to cheap capital, or it may believe this trade-off is not worth it. Choosing financial flexibility over capital returns make sense if ALY is a high-growth company. ALY’s revenue growth over the past year was an impressively high triple-digit rate, so it is acceptable that the company is opting for a zero-debt capital structure currently as it may need to raise debt to fuel expansion in the future.
Can ALY meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, AnalytixInsight has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. Looking at ALY’s CA$488k in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of CA$2.2m, with a current ratio of 4.56x. Having said that, a ratio greater than 3x may be considered high by some.
Next Steps:
As a high-growth company, it may be beneficial for ALY to have some financial flexibility, hence zero-debt. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Going forward, its financial position may be different. I admit this is a fairly basic analysis for ALY’s financial health. Other important fundamentals need to be considered alongside. You should continue to research AnalytixInsight to get a more holistic view of the stock by looking at:
Historical Performance: What has ALY’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
