Stock Analysis

Is FLYHT Aerospace Solutions (CVE:FLY) A Risky Investment?

TSXV:FLY
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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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that FLYHT Aerospace Solutions Ltd. (CVE:FLY) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for FLYHT Aerospace Solutions

How Much Debt Does FLYHT Aerospace Solutions Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2022 FLYHT Aerospace Solutions had CA$4.74m of debt, an increase on CA$3.65m, over one year. However, it also had CA$2.30m in cash, and so its net debt is CA$2.44m.

debt-equity-history-analysis
TSXV:FLY Debt to Equity History February 23rd 2023

How Strong Is FLYHT Aerospace Solutions' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that FLYHT Aerospace Solutions had liabilities of CA$4.62m due within 12 months and liabilities of CA$6.32m due beyond that. Offsetting these obligations, it had cash of CA$2.30m as well as receivables valued at CA$4.21m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$4.43m.

Given FLYHT Aerospace Solutions has a market capitalization of CA$34.4m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, FLYHT Aerospace Solutions reported revenue of CA$19m, which is a gain of 57%, 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.

Caveat Emptor

Despite the top line growth, FLYHT Aerospace Solutions still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CA$3.1m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CA$3.3m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that FLYHT Aerospace Solutions is showing 4 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

Valuation is complex, but we're helping make it simple.

Find out whether FLYHT Aerospace Solutions is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.