This week, Hastie Group has voluntarily appointed administrators after not being able to refinance their debts. In 2011, the company had financed their debts and raised $160 million in new capital to keep the business going. The company’s 2011 annual report was littered with phrases such as “debt covenants” and “finance facilities” which is essentially saying that for the past 12 months, Hastie’s bankers had been running the company and not the directors or management.
Investors in Hastie will likely lose all of their money invested. And, I feel for the employees, contractors and suppliers who are going to have to fight to be paid a portion of what they are owed.
In the June 2011 financial year, Hastie’s accounts showed:
- A net loss after tax of $87.8 million
- Negative cashflow of $84.7 million
- Net debt of $241.7 million (over 87% net debt to equity)
And, the company had paid over $9.5 million in dividends out of money they didn’t have.
I use a process to find great quality companies to invest in by assessing each business’ profitability, cash flow and debt levels now and into the future. This process of ‘value investing’ just as importantly helps me weed out companies that have low profit, poor cash flow and high debts. Simply avoiding companies with such low quality metrics can help you beat the market by not putting your money into a business that will incur a total and permanent loss of your capital.
This article is written by Dean Mico.
The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.