PFF Panel 2
Seedly PFF 2019
Asked by Anonymous
Asked on 02 Mar 2019
In my opinion for starters, I would consider the following non-exhaustive list of factors:
This tells you how much Debt the company is holding relative to equity and a higher gearing ratio would mean that the company is taking on a larger proportion of debt to run its company.
This takes into account the company's Account Receivables, Account Payables and Inventory Turnover ratio (given by Average AR Colletible Days +Average Inv Cycle -Average Accounts Payable Outstanding). A negative cash conversion cycle means that the company is able to obtain a "interest-free" way of financing its business because it is able to obtain cash before having to pay the company's suppleirs. However, the CCC should be used in comparison to industry peers because some industries generall have negative CCC while others have positive CCC. Negative CCCs are rarer but definitely do occur (i.e. Dairy Farm International)
Times Interested Earned ratio tells investors the ability for the company to pay its debt payments using the income generated (EBIT/Interest Expenses)
Understanding which industry the company sits in would also paint a clearer picture and give you better confidence in the type of business it is running. Overall, ratio should not be used in isolation and taking into account a few indicators at once can tell you a better story of the loan.