Does GenusPlus Group (ASX:GNP) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, GenusPlus Group Limited (ASX:GNP) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for GenusPlus Group

How Much Debt Does GenusPlus Group Carry?

As you can see below, at the end of December 2023, GenusPlus Group had AU$5.07m of debt, up from AU$4.21m a year ago. Click the image for more detail. But it also has AU$50.3m in cash to offset that, meaning it has AU$45.2m net cash.

A Look At GenusPlus Group's Liabilities

Zooming in on the latest balance sheet data, we can see that GenusPlus Group had liabilities of AU$97.4m due within 12 months and liabilities of AU$31.0m due beyond that. On the other hand, it had cash of AU$50.3m and AU$97.9m worth of receivables due within a year. So it can boast AU$19.7m more liquid assets than total liabilities.

This short term liquidity is a sign that GenusPlus Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, GenusPlus Group boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, GenusPlus Group grew its EBIT by 75% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine GenusPlus Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. GenusPlus Group may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, GenusPlus Group actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case GenusPlus Group has AU$45.2m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 104% of that EBIT to free cash flow, bringing in AU$35m. So we don't think GenusPlus Group's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of GenusPlus Group's earnings per share history for free.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.