Largo Inc. — financial distress indicators
Financial-health summary
Largo Inc.'s reported numbers place it in the 'Very weak' financial-health band (distress score 100/100). The main indicators are operating profit does not cover interest, cash runway under 12 months and market-implied default probability >20%. Independently, the Ohlson accounting model puts its 1-year failure probability at 85% and the market-implied (Merton) default probability is 69.9%.
Stress by dimension
Share price — last 12 months
Indicators behind the score
Each red flag shows the evidence from the company’s own filings and the financial or legal principle behind it. Points add to the 0–100 score.
Interest coverage (EBIT / interest) is -2.64×.
When EBIT < interest, debt service is funded from cash reserves or new borrowing — the classic precursor to payment default and covenant breach.
At the current free-cash-flow burn, cash covers ~3 months.
Going-concern standard: management must assess ability to continue for 12 months (ASC 205-40). Runway below that horizon forces dilution, asset sales or default.
Merton distance-to-default -0.52 σ → PD 70%.
Structural (Merton/KMV) model: equity is a call option on assets; low distance-to-default means assets are close to the default point.
Current ratio is 0.55 (current assets cover 55% of near-term obligations).
Cash-flow insolvency test: inability to pay debts as they fall due is the trigger for both U.S. involuntary petitions and Indian IBC default.
Net income negative in 3 of 3 fiscal years.
Persistent losses erode equity and the capacity to absorb shocks.
Debt is 32% of assets while EBITDA is not positive.
With no operating earnings, repayment depends entirely on asset sales or fresh capital.
Price is -82% from its 52-week high.
Equity markets price distress early; collapses of this size usually reflect fear of wipe-out in a restructuring.
O-score 1.76 → model probability 85%.
Ohlson (1980) logit model of 1-year corporate failure; O > 0 (p > 50%) is the original failure cut-off.
Last price $0.46.
Below the $1 minimum-bid listing standard (Nasdaq Rule 5550(a)(2) / NYSE 802.01C); sustained breach leads to delisting and loss of capital-market access.
Share count up +31% in a year.
Large issuance usually funds operating losses rather than growth.
1 severe and 1 moderate distress-related headlines in the last 6 months.
Headlines are corroborating evidence only; they are weighted lightly and never drive a flag alone.
Operating margin fell from -8% to -42% in two years.
Sharp margin compression signals loss of pricing power or cost control.
Revenue declined every year for three years.
Structural, not cyclical, decline.
Revenue vs net income
Cash generation
Debt vs cash vs equity
✅ Mitigating factors
- No material mitigating factors found in the available data.
📰 Recent news scan
- delistLargo TSX Delisting Review ResolvedYahoo Finance · 2026-08-27
- restructurLargo Restructures Debt and Begins Copper-PGM Concentrate SalesYahoo Finance · 2026-09-14
- Largo Receives Environmental Permit for GAN Open Pit Vanadium-Copper-Gold-PGM Mine DevelopmentYahoo Finance · 2026-10-08
- ARCF IV Participates in US$5.7 million Registered Direct OfferingYahoo Finance · 2026-10-02
- Largo Announces Closing of US$5.7 Million Registered Direct OfferingYahoo Finance · 2026-09-29
- LARGO ANNOUNCES PRICING OF US$5.7 MILLION REGISTERED DIRECT OFFERINGYahoo Finance · 2026-09-25
⚖️ U.S. legal pathway — Title 11, U.S. Code
Which chapter would apply?
- Chapter 11 — reorganisation. Management usually stays in control as debtor-in-possession; the automatic stay (§362) halts collection; a plan must meet the best-interests test (§1129(a)(7)) and the absolute priority rule (§1129(b)) — creditors are paid before shareholders, who are frequently wiped out.
- Chapter 7 — liquidation. A trustee sells assets and distributes proceeds by statutory priority (§§507, 726).
- Subchapter V (“Chapter 5”) is a fast track for small-business debtors under a statutory debt cap, but SEC-reporting companies are excluded (§101(51D)) — so it rarely applies to listed companies.
What typically triggers a filing
- Payment default or covenant breach lenders will not waive; a debt maturity that cannot be refinanced.
- Auditor going-concern doubt (ASC 205-40 / PCAOB AS 2415) — often itself a default trigger in loan agreements.
- Creditors can force a case with an involuntary petition (§303) if debts are not paid as they come due.
- Delisting after sustained sub-$1 prices or equity deficits cuts off equity funding.
Transactions shortly before filing can be clawed back (preferences — 90 days, §547; fraudulent transfers — 2 years, §548).
Frequently asked questions
What do Largo Inc.'s financial-health indicators show?
As of 2026-10-08, Largo Inc.'s public financial data places it in the 'Very weak' band with a distress score of 100/100, driven by operating profit does not cover interest, cash runway under 12 months and market-implied default probability >20%. This is a statistical screen of reported numbers — it does not mean the company is insolvent, has defaulted or will enter insolvency proceedings.
What is Largo Inc.'s financial distress score?
100/100 ('Very weak'). Ohlson O-score 1.76 (model 1-year failure probability 85%). Merton distance-to-default -0.52 σ (model default probability 69.9%).
What works in Largo Inc.'s favour?
No material mitigating factors were found in the available data.
How are shareholders treated if a company enters insolvency?
In a Chapter 11 reorganisation the absolute priority rule pays secured lenders, then unsecured creditors, before shareholders — so existing shares are usually cancelled or heavily diluted. In Chapter 7 the company is liquidated and shareholders rarely recover anything.
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Methodology
Score = capped sum of rule-based red flags across seven dimensions (liquidity, solvency, profitability, cash flow, sales trend, market signal, news). Ohlson O-score (1980) gives an accounting-based 1-year failure probability; Merton distance-to-default (Bharath & Shumway 2008) gives a market-implied probability. Financial institutions use a capital-based rule set. Recalculated every trading day from the latest filings, prices and news.