Is Beyond International (ASX:BYI) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Beyond International Limited (ASX:BYI) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Beyond International

What Is Beyond International's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2020 Beyond International had debt of AU$4.69m, up from AU$871.0k in one year. However, it does have AU$17.9m in cash offsetting this, leading to net cash of AU$13.2m.

A Look At Beyond International's Liabilities

According to the last reported balance sheet, Beyond International had liabilities of AU$61.8m due within 12 months, and liabilities of AU$2.91m due beyond 12 months. On the other hand, it had cash of AU$17.9m and AU$31.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$15.8m.

Beyond International has a market capitalization of AU$40.2m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Beyond International boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Beyond International will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Beyond International reported revenue of AU$98m, which is a gain of 21%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Beyond International?

Although Beyond International had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of AU$16m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. One positive is that Beyond International is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But that doesn't change our opinion that the stock is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Beyond International (1 shouldn't be ignored!) that you should be aware of before investing here.

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. 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.
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