FLYHT Aerospace Solutions (CVE:FLY) Is Making Moderate Use Of Debt

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies FLYHT Aerospace Solutions Ltd. (CVE:FLY) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for FLYHT Aerospace Solutions

What Is FLYHT Aerospace Solutions's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2023 FLYHT Aerospace Solutions had debt of CA$4.66m, up from CA$4.47m in one year. However, because it has a cash reserve of CA$3.76m, its net debt is less, at about CA$904.8k.

A Look At FLYHT Aerospace Solutions' Liabilities

According to the last reported balance sheet, FLYHT Aerospace Solutions had liabilities of CA$5.73m due within 12 months, and liabilities of CA$5.93m due beyond 12 months. Offsetting this, it had CA$3.76m in cash and CA$3.40m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$4.50m.

Given FLYHT Aerospace Solutions has a market capitalization of CA$31.8m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if FLYHT Aerospace Solutions can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year FLYHT Aerospace Solutions wasn't profitable at an EBIT level, but managed to grow its revenue by 73%, to CA$24m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Despite the top line growth, FLYHT Aerospace Solutions still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost CA$849k at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CA$364k of cash over the last year. So suffice it to say we do consider the stock to be 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. To that end, you should learn about the 2 warning signs we've spotted with FLYHT Aerospace Solutions (including 1 which is potentially serious) .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.