Financial Analysis: Hydrogenics Corporation

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(c) Hydrogenics Corporation financed its assets mostly through debt. In 2013, it had 84.6% debt and 15.4% equity. Similarly in 2012, it had 89.7% debt and 10.3% equity. Its debt to equity ratio was 5.50 times and 8.72 times in 2013 and 2012 respectively. The debt to equity ratio of Hydrogenics Corporation is a concern to creditors. Potential creditors might be reluctant to extend credit to the company. (d) The account receivable growth rate from 2012 to 2013 was a decrease of 5.52% whereas the allowance for doubtful accounts went up by 12.10%. The sales account had a growth rate of 33.81%. From these numbers we see that the sales of Hydrogenics Corporation increased from 2012 to 2013. Since there was a decrease in the accounts receivable, …show more content…

The Corporation has sustained losses and negative cash flows from operations since its inception. The Corporation is exposed to liquidity risk as it continues to have net cash outflows to support its operations. The Corporation’s objective is to minimize its exposure to credit risk from customers in order to prevent losses on financial assets by performing regular monitoring of overdue balances and to provide allowance for potentially uncollectible accounts receivable. The Corporation has also insured a portion of its outstanding accounts receivable with Export Development Canada. By insuring its outstanding accounts receivable, Hydrogenics had less write-off of bad debts. Based on its past experience of not collecting its receivables from customers, the company made a larger allowance for bad debt in 2013 than 2012. The result is the higher growth rate in allowance for doubtful accounts and decrease in accounts …show more content…

In terms of commitments, it has operating leases of $4,677 thousand due after 2018. In 2013 it recorded $845 thousand of its operating lease as rent expense. In 2014, it is expecting to expense $1,083 thousand. This amount is material for Hydrogenics Corporation considering its low cash inflow from operations. In the area of contingencies, Hydrogenics Corporation has not recorded any transactions yet. It has “entered into indemnification agreements with its current and former directors and officers to indemnify them, to the extent permitted by law against any and all charges, costs, expenses, amounts paid in settlement, and damages” (Hydrogenics). Hydrogenics Corporation also expensed $7,614 thousand in 2013 as part of its guarantees. It offers the customers guarantees for its products and services. In the notes to the financial statements of 2013, it states, “the standby letters of credit and letters of guarantee may be drawn on by customers if the Corporation fails to perform its obligations under the sales contracts” (Hydrogenics). Profitability

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