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Alexium International Group Limited’s (ASX:AJX) Balance Sheet Strong Enough To Weather A Storm?

Lacy Summers October 24, 2017
Alexium International Group Limited (ASX:AJX) is a small-cap stock with a market capitalization of AUD $124.03M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? A major downturn in the energy industry has resulted in over 150 companies going bankrupt and has put more than 100 on the verge of a collapse, primarily due to excessive debt. Here are few basic financial health checks to judge whether a company fits the bill or there is an additional risk which you should consider before taking the plunge. Check out our latest analysis for Alexium International Group
Does AJX generate enough cash through operations?


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ASX:AJX Historical Debt Oct 24th 17
There are many headwinds that come unannounced, such as natural disasters and political turmoil, which can challenge a small business and its ability to adapt and recover. These catastrophes does not mean the company can stop servicing its debt obligations. 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. Last year, AJX’s operating cash flow was -2.04x its current debt. This means what AJX 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 AJX’s operations at this point in time.

Can AJX meet its short-term obligations with the cash in hand?

What about its other commitments such as payments to suppliers and salaries to its employees? During times of unfavourable events, AJX could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that AJX 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.

Does AJX face the risk of succumbing to its debt-load?


Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. For AJX, the debt-to-equity ratio stands at above 100%, which indicates that the company is holding a high level of debt relative to its net worth. In the event of financial turmoil, the company may experience difficulty meeting interest and other debt obligations.
Next Steps:

Are you a shareholder? AJX’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, AJX’s financial situation may change. I recommend keeping abreast of market expectations for AJX’s future growth on our free analysis platform.
Are you a potential investor? AJX’s large debt ratio on top of poor cash coverage as well as low liquidity coverage of near-term obligations may send potential investors running the other way. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of AJX’s track record. As a following step, you should take a look at AJX’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.