Avaya Inc was listed at #113 on Forbes' list of America's largest private companies in 2017, based on the $3.6 billion USD in sales reported in its September 2016 annual report. Unfortunately for the thousands of customers for which it provides critical support solutions, such as real-time communication services and contact center solutions, even with that level of sales the company was forced to make a Chapter 11 filing on January 19, 2017, with a FHR of 25, High Risk.
FHR at default: 25, High Risk
What the ratings tell you.
The primary signal is the FHR, and a High Risk rating (FHR 20-39) tells you the company is at material risk of default in the next 12 months, and you should take steps to mitigate your risk. Specifically, the rating of 25 had a probability of default of 5.6% (well above the industry average of 0.14%), which means you should act sooner rather than later.
Where our analysis tells the story.
Our reports put it pretty clearly:
"If current trends persist it would be logical to expect that Avaya Inc. will face serious default risk this coming year and will struggle with efficiency and competitiveness problems over the medium-term."
How does a 25 compare to others? Avaya's Peer Benchmark Report shows this rating of 25 is well below the sector average of 57.2.
Avaya's FHR is well below the sector average.
The analysis detected weakness in leverage and liquidity. You can see just how bad things are by looking at Table 2: Financial Ratios in the Peer Benchmark Report. We can see:
- The Current Ratio is well below the industry average, at 0.73 compared to 2.42
- The Cash Ratio is well below the industry average, at 0.17 compared to 0.61
- Leverage is well above the industry average, at 93% compared to 13%
Not only are these ratios well under-performing the average, they all suggest high distress!
If ratio analysis is not your preference, the Financial Dialogue laid out some clear directions for addressing the issues with the company when you're trying to get perspective on your risk. These questions included:
- Sales for the trailing 12 months have decreased 8.1% since the prior year end. What has caused the decline in sales?
- Cash From Operations (CFO) for the period is positive ($60 M), however was still only 0.04x of current liabilities. What are your expectations for CFO in the next fiscal year?
- The company's Current Ratio is 0.73x, and this is down on last period (0.83x). What is your target Current Ratio and will you reach this level of working capital in the next 12 months?
Pro Tip: The Financial Dialogue provides supporting information alongside these questions, including 'Why this is important?' and 'Other factors to be aware of'.