SpaceandPeople - Financial Distress Analysis

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I’ll use Piotroski’s nine factors aimed at a detecting a trend in financial distress risk to initiate a discussion of SpaceandPeople’s vulnerability to running into serious problems. After all, this share has fallen 92% in five years, which might indicate that Mr Market thinks it is likely to go bust.

The nine factors:

  1. Did it produce a net income before extraordinary/exceptional items?

No, a loss of £171,000 even before a “non-recurring cost”, so no Piotroski point.

  1. Cash flow from operations?

No, the cash outflow was £1.4m.  No Piotroski point.

  1. A positive change in return on assets employed in the business from the previous year?

No, because profits were made in 2017, but losses in 2018. No Piotroski point.

  1. Cash flow is greater than profit?

Cash outflow greater than loss.  No Piotroski point.

  1. Has the firm’s long-term debt reduced relative to its average total assets?

No long-term debt in either 2017 or 2018 (no overdraft of short-term debt at year end – but there was a facility to borrow up to £1.25m – useful during the lean months of the year). I’ll give a Piotroski point for no/low debt.

  1. Has the firm’s current ratio (current assets divided by current liabilities) improved over the past year?

2017: current assets/current liabilities = £6.028m/£5.074m = 1.19;

2018: £4.396m/£3.874m = 1.13.

No Piotroski point.

  1. Has the firm avoided raising fresh equity capital (e.g. rights issue or placing) in the last year?

Annual: Yes, so a second point is gained.

  1. Has gross profit margin improved this year compared with last?

2017: £6.61m/£10m = 66%;

2018: £5.05m/£7.94m = 64%.  No Piotroski point is scored.

  1. Has the ratio of turnover to beginning-of-the-year total assets improved this year compared with last?  

2017: £10m/£14.7m = 68%,

2018: £7.94m/£15.4m = 61%.  No Piotroski point.

Discussion

An overall score of two is very poor. To look on the bright side we can point to the absence of yearend debt – but there are points in the year when it uses up to £1m of a

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