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Highlights
- Donaco International has more cash than debt, maintaining a healthy balance sheet.
- Impressive 587% growth in EBIT strengthens its financial position.
- Free cash flow exceeds EBIT, helping to manage debt effectively.
When assessing risk, the focus often shifts to debt management, especially for companies like Donaco International (ASX:DNA). Understanding how a company handles its debt load can offer insights into its financial stability. As of June 2024, Donaco International had a debt of AU$15.9 million, down from AU$18.3 million the previous year. However, this is offset by AU$29.7 million in cash reserves, giving it a net cash position of AU$13.8 million.
Understanding Debt Risks
Debt can be a double-edged sword for businesses. While it can support growth, failing to meet repayment obligations can lead to financial difficulties. In some cases, companies may issue new shares at low prices to raise funds, which dilutes existing shareholders' equity. However, Donaco International's approach to debt appears cautious, ensuring a favorable balance between debt and cash flow.
Net Debt Overview
By the end of June 2024, Donaco International reported AU$15.9 million in debt, but its significant cash reserves of AU$29.7 million put it in a net cash position. This financial cushion indicates that the company is more than capable of managing its obligations.
Balance Sheet Health
Donaco International's balance sheet shows liabilities of AU$40.3 million due within 12 months, with an additional AU$7.3 million in long-term liabilities. Despite this, the company's cash reserves and AU$297.4k in receivables offer a solid buffer. While liabilities exceed liquid assets by AU$17.7 million, the company’s market value of AU$35.8 million provides some reassurance.
The company’s significant cash holdings outweigh its debt, reflecting a low-risk profile. This financial position offers flexibility and security, allowing it to handle debt efficiently.
Strong EBIT Growth
One of the standout aspects of Donaco International's financial performance is its 587% EBIT growth over the last 12 months. If this growth continues, managing debt will become even easier in the future. The company’s ability to generate earnings plays a key role in maintaining its financial health, especially in terms of debt servicing.
Free Cash Flow Surpasses EBIT
One of the most promising signs for Donaco International is its ability to generate free cash flow. In fact, the company’s free cash flow over the past two years exceeded its EBIT by 135%, totaling AU$15 million. This extra liquidity is vital for maintaining strong relationships with lenders and ensuring debt obligations are met without issue.
Donaco International's debt management strategy seems to be on solid ground. Despite some liabilities, its net cash position and strong cash flow give it the ability to comfortably manage its debt.
