Stock Analysis

Would FLYHT Aerospace Solutions (CVE:FLY) Be Better Off With Less Debt?

TSXV:FLY
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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. 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?

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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

What Is FLYHT Aerospace Solutions's Net Debt?

The image below, which you can click on for greater detail, shows that FLYHT Aerospace Solutions had debt of CA$4.75m at the end of June 2022, a reduction from CA$5.43m over a year. However, it also had CA$3.00m in cash, and so its net debt is CA$1.74m.

debt-equity-history-analysis
TSXV:FLY Debt to Equity History November 7th 2022

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$5.35m due within 12 months and liabilities of CA$6.41m due beyond that. Offsetting this, it had CA$3.00m in cash and CA$3.40m in receivables that were due within 12 months. So its liabilities total CA$5.36m more than the combination of its cash and short-term receivables.

Since publicly traded FLYHT Aerospace Solutions shares are worth a total of CA$33.2m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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 FLYHT Aerospace Solutions'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.

In the last year FLYHT Aerospace Solutions wasn't profitable at an EBIT level, but managed to grow its revenue by 43%, to CA$16m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though FLYHT Aerospace Solutions managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Its EBIT loss was a whopping CA$5.2m. 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$5.0m of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example FLYHT Aerospace Solutions has 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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.