Awhile ago, the resident professor stated something to the...

Awhile ago, the resident professor stated something to the effect that companies without debt don’t go broke.

I responded to the effect that, whilst high net debt to equity ratios are a red flag, the notion that a company without debt can’t go broke is a complete fallacy.

I went on to say something to the effect that APX’s financial performance was such that it may not be able to raise debt and was equally unlikely to get another CR away after the last one.

In other words, the business was dependent on the generosity of new and current shareholders with the former interested in a quick stag profit more than long a term investment whilst the latter’s reducing interest in throwing more money at this thing bearing in mind the take up rate of the most recent rights issue entitlements.

I also pointed out that even the CEO didn’t participate in the last raising which, to me, was another red flag.

The most recent announcement has a material impact on revenue and, whilst I appreciate that cost cutting is a positive, it’s finite and could be detrimental to the ongoing medium to long term viability of the business and, of course, its growth prospects.

So, if operating revenue is insufficient to cover operational costs (without debt) the working capital deficiency will eventually cause the business to go broke.

I’m not saying that this will happen to APX, but the notion that because it does not have any debt, it can’t go broke, is complete nonsense.