A huge gap in the capacity of listed firms on the Nigerian Exchange Limited, NGX, to meet their debt commitments with cash has revealed, with some companies holding several times their debt in cash while others have cash to meet only a fraction of their current borrowings.
Vanguard says, that analysts said, investment, employment, output and capital-market development, it was gathered, could be affected by the cash/debt balance of some of the listed companies.
Our data for 40 companies in Q2 2026 showed a combined total debt of N3.9 trillion. Of these companies, 18 have cash / debt ratios of at least 1.0 times, i.e. their cash holdings are equal to or more than their total debt. Twenty-two companies have ratios below 1.0 times, i.e. their total debt is higher than their cash on hand.
The cash/debt ratio assesses the ability of a corporation to meet debt obligation with the cash available to it.
A ratio of over 1.0 times often means the company has enough cash to pay off all of its debt. The ratio by itself does not reflect the overall financial soundness or debt-servicing ability.
Cash / debt analysis
HBM Nigeria topped the cash/debt analysis table with a cash/debt ratio of 319.07 times, cash of N393.68 billion and total debt of N1.23 billion. Africans & Diasporas
UPDC Real Estate Investment Trust followed with 283.73 times, from cash of N7.15 billion against debt of only N25.2 million while eTranzact International recorded 214.89 times, with N23.69 billion cash and N110.24 million debt.
CWG also posted a high ratio of 211.1 times with cash of N7.4 billion against total debt of N35.06 million.
Other companies with substantial cash cover included Unilever Nigeria (44.8 times), Berger Paints (18.4 times), Industrial & Medical Gases (13.56 times) and NASCON Allied Industries (12.72 times).
Companies with better cash cover
Our correspondent also collected accessible data that revealed numerous big corporations had cash more than their debt.
Vitafoam Nigeria recorded 5.88 times, UPDC recorded 5.47 times. International Breweries 3.34 times, Sterling Financial Holdings 3.08 times and May & Baker Nigeria 2.83 times. African & Diasporic
Livestock Feeds 1.94 times, Julius Berger Nigeria 1.85 times, Chams Holdings 1.65 times and Dangote Cement 1.31 times. Skyway Aviation 1.19 times.
These numbers show that based on cash on hand alone relative to total debt, these enterprises have some level of liquidity protection against debt commitments.
However, economists warn that a high cash/debt ratio is not necessarily an indication that a company is more successful or better managed.
Debt trumps cash in 22 firms
On the opposite end of the scale, Aradel Holdings had a cash/debt ratio of 0.96 times, with cash of N1.77 trillion against a total debt of N1.84 trillion.
Ellah Lakes recorded 0.81 times, John Holt 0.77 times, Academy Press 0.72 times and Eterna 0.69 times. ABC Transport was at 0.58 times while Cadbury Nigeria and Fidson posted 0.53 times each. Africans & Diasporas
BUA Cement had a ratio of 0.46 times, BUA Foods 0.44 time, Beta Glass 0.34 time, Conoil 0.20 times, Guinness Nigeria 0.16 times and Champion Breweries 0.16 times.
DAAR Communications 0.14 times, Cutix 0.11 times and Japaul Gold & Ventures 0.11 times apiece.
Geregu Power had 0.09 times, FTN Cocoa Processors 0.08 times, C & I Leasing 0.07 times, Chellarams 0.05 times and Caverton Offshore Support Group was lowest with 0.03 times.
This implies for example, Caverton’s N2.46 billion cash position is a minor part of its N87.15 billion overall debt, while Chellarams has N235.16 million cash versus N5.12 billion debt.
Implications for businesses:
The cash/debt ratio is a good clue to investors about the strain on corporations to generate cash, especially while borrowing costs stay high, say market watchers.
They found that organisations with ratios well above 1.0 times had larger cash cushions to pay debt obligations, fund working capital and survive brief disruptions in revenue.
But they also cautioned that large cash piles could prompt doubts about whether the money was being used wisely.
A very high cash/debt ratio might be good from a liquidity viewpoint, but investors should look at why the company is sitting on so much cash rather than investing it in productive assets, growing operations, reducing debt or returning capital to shareholders, the analysts said.
The problem is different for organisations whose ratios are below 1.0 time. A low ratio does not necessarily signal that a firm is in financial trouble as companies generate operating cash flows and may have access to undrawn credit lines and other sources of liquidity.
A chronically low ratio might leave corporations vulnerable to refinancing and interest-rate concerns, particularly where loan repayments are due before adequate cash is earned from operations, analysts warned.
Shareholder consequences
The ratio has ramifications for risk and returns for shareholders.
Companies with reasonably robust cash positions may be better able to service debt, weather bad periods without disruption to operations and finance expansion without immediately turning to new borrowing or stock dilution.
Conversely, organisations with low cash/debt ratios may be more susceptible to financial risk if earnings or operating cash flows deteriorate.
Analysts nevertheless cautioned that the ratio should not be the only criterion for shareholders’ investment decisions.
They stated investors should look at profitability, operating cash flow, interest expenses, debt maturity profile, working-capital requirements, asset quality and management’s capital-allocation strategy as well as the cash/debt situation.
Implication for the Nigerian economy
On the macroeconomic level, researchers stated the cash/debt ratio of listed companies might impact investment, employment, production and development of the capital market.
Businesses that are heavily in debt may spend more of their earnings on interest and principal repayments than they do on expansion, technology, hiring and dividend payments.
But when debt is used for constructive purposes, leverage can help to spur growth and raise productive capacity.
Analysts said the lesson is that the quality and usage of debt is as important as the amount of debt itself.
A company with a low cash/debt ratio but solid and consistent operating cash flow could be able to meet its obligations. A company with a high cash/debt ratio but weak operations might still have trouble in business.
The ability of listed companies to maintain adequate liquidity is consequently vital to the Nigerian economy since financially stable enterprises are better positioned to sustain output, employment, tax payments and investment.
Cash/debt ratio is not a stand-alone measure
Consequently, analysts said, investors should consider the cash/debt ratio as part of a broader assessment of financial health.
The data reveals a stark dichotomy between companies listed on the NGX with cash balances that are several times their debt and those with debt multiples of their available cash.
The gap underscores the way corporations handle borrowing, liquidity and capital allocation and gives investors yet another yardstick for judging financial risk.
Analyst’s remarks
Investors should not look at debt in isolation, they need also look at earnings, cash flow, interest-cover ratios and maturity profile of borrowings said Ambrose Omordion, Chief Operating Officer, InvestData Consulting Limited.
High debt levels can amplify shareholder profits when borrowed funds are deployed in attractive ventures, but can also amplify losses when profitability and cash flows falter, he said.
The same goes for the cash-to-debt ratio.
A company with a low ratio but robust and consistent operating cash flow may be able to remain financially stable if the cash balance is not being refilled. But a company with a high ratio but bad operations may face longer-term issues.
Effects on enterprises
High cash cover is a crucial cushion for the companies themselves in a situation of rising interest rates.
Companies with longer maturity of loans may incur greater finance expenses due to refinancing requirements. Those with large cash piles can pay off some debt, negotiate from a stronger position with lenders or fund some of their capital spending internally.
That might lower loan costs and increase profitability.
Commenting on the ratios, economic and communications expert, Clifford Egbomeade, said: “The interpretation of cash and debt should go beyond the ratio itself,” and stressed the need for investors to look at the quality and utilisation of the funds.
“A company that is well capitalised and has low debt is better able to withstand shocks to the economy and to finance expansion or take advantage of investment opportunities without having to resort immediately to expensive debt,” he says.
“This is especially relevant in Nigeria where corporate borrowing costs are still relatively high. Africans & the Diaspora
“Some companies purposely stockpile cash to fund inventories, capex, acquisitions, dividend payments and other strategic obligations.
“Furthermore, cash and cash equivalents may include restricted funds or short-term investments that are not always readily available for use.
“This means that shareholders should consider the composition of cash before making conclusions about a company’s liquidity.”
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