Sky Quarry Inc. — financial distress indicators

Interest coverage (EBIT / interest) is -3.11×.

When EBIT < interest, debt service is funded from cash reserves or new borrowing — the classic precursor to payment default and covenant breach.

Merton distance-to-default -0.36 σ → PD 64%.

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 0.08 (current assets cover 8% 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.

Revenue changed -47% year over year.

A >30% sales drop typically breaches leverage covenants and starves fixed-cost coverage.

Debt is 59% of assets while EBITDA is not positive.

With no operating earnings, repayment depends entirely on asset sales or fresh capital.

Operating cash flow negative in 3 of the last 3 years.

A business that cannot fund itself from operations depends on external capital to survive.

O-score 7.64 → model probability 100%.

Ohlson (1980) logit model of 1-year corporate failure; O > 0 (p > 50%) is the original failure cut-off.

Short-term debt is 1.5× cash on hand.

Maturity wall: debt due within a year must be refinanced, which is the most common proximate cause of filings.

Price is -80% from its 52-week high.

For financial firms a share-price run often precedes a deposit or funding run (confidence channel).

Share count up +36% in a year.

Large issuance usually funds operating losses rather than growth.

Operating margin fell from -3% to -74% in two years.

Sharp margin compression signals loss of pricing power or cost control.