Yahoo Finance Are Zyber Holdings Limited’s (ASX:ZYB) Interest Costs Too High?
Zyber Holdings Limited (ASX:ZYB), 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 ZYB will have to follow strict debt obligations which will reduce its financial flexibility. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean ZYB has outstanding financial strength. I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status.
View our latest analysis for Zyber Holdings
Does ZYB’s growth rate justify its decision for financial flexibility over lower cost of capital?
Debt capital generally has lower cost of capital compared to equity funding. Though, the trade-offs are that lenders require stricter capital management requirements, in addition to having a higher claim on company assets relative to shareholders. Either ZYB does not have access to cheap capital, or it may believe this trade-off is not worth it. This makes sense only if the company has a competitive edge and is growing fast off its equity capital.
Can ZYB pay its short-term liabilities?
Since Zyber Holdings doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at ZYB’s most recent AU$66.2k liabilities, it appears that the company has been able to meet these commitments with a current assets level of AU$1.1m, leading to a 17.17x current account ratio. Having said that, anything above 3x may be considered excessive by some investors. They might argue ZYB is leaving too much capital in low-earning investments.
Next Steps:
As a high-growth company, it may be beneficial for ZYB 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, ZYB’s financial situation may change. Keep in mind I haven’t considered other factors such as how ZYB has been performing in the past. You should continue to research Zyber Holdings to get a more holistic view of the stock by looking at:
Historical Performance: What has ZYB’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.
