Friday, October 24, 2008

Another Way To Look At Debt Repayment - Jaya VS Ezra!

This is massive...seriously..the sell down ( we believe it's due to margin calls and the mandatory liquidation of positions)and its during these kind of periods that SGDividends believe that more weight have to be placed on analysing the debts of companies.So let us consider another well known measure. Interest coverage ratio. And let us apply it to 2 companies. Jaya and Ezra.(As of today 24 Oct 08, Ezra's 1 day drop is 10.2% btw and Jaya is 16.4% and guess what ?Jaya is giving a dividend payout..ha, is it prudent to do it Mr Jaya, shouldn't you save it for a rainy day like in POSB MySavings Account?). So just what can this ratio do? And why are we comparing this 2 companies? See below!

Interest coverage indicates how many times the interest could be paid from available earnings, thereby providing a sense of the safety margin a company has for paying its interest for any period. A company that sustains earnings well above its interest requirements is in an excellent position to weather possible financial storms. By contrast, a company that barely manages to cover its interest costs may easily fall into bankruptcy if its earnings suffer for even a single month. This is especially true for cyclical industry!

Formula(Above)


Jaya Holdings (Above)


Ezra (Above)

Ezra's interest converage after deducting for one off items is a mere 5.06% and Jaya's is 52.5%. No wonder Jaya can still give off dividends and Ezra has not declared any dividends. Even if we give Ezra a chance, and don't deduct their one off items, its coverage is only 26.1%, half of Jaya's! Tsk Tsk Tsk. No wonder you are in the top volume for 2 days consecutively.

And hello...dear readers..look at how these 2 companies are still so optimistic about the oil and gas industry. Do they watch CNBC or have they been living in a cave? As usual the management talk!



Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team





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