Module 4 of 8 in Fundamental analysis
Debt, cash and financial strength
How much a company owes, whether it can service that debt, how much free cash it generates, and how it pays shareholders.
5 lessons in this module. Progress is saved in your browser as you go.
Most corporate collapses involve debt that could not be repaid. This module covers the measures that show how much a company owes, how comfortably it can pay interest, how much cash the business generates after investment, and whether its dividends are covered.
By the end of this module you should be able to
- Calculate debt-to-equity, net debt and interest coverage and interpret them in context.
- Calculate free cash flow and cash conversion from a cash flow statement.
- Analyse inventory, receivable and payable days and the cash conversion cycle over time.
- Calculate dividend payout and coverage and judge whether a dividend is sustainable.
Lessons in order
Module test
10 questions, chosen at random from a bank of 30 questions and balanced across this module's learning goals and difficulty levels. Every question comes with an explanation. You need 80% to pass, and you can retake it as often as you like with a fresh set of questions.
This module builds on
- The balance sheet: Borrowings, cash and equity all come from the balance sheet, explained there.
- Operating profit, EBITDA and net profit: Coverage uses operating profit (EBIT), explained there.
- The cash flow statement: Operating cash flow and capital expenditure come from the cash flow statement explained there.
- Working capital, inventory and receivables: That lesson introduces inventory, receivables, payables and the cash conversion cycle.
- Earnings per share: Payout ratios compare dividends per share with earnings per share.