When Hunting PLC (LON:HTG) reported its results to December 2020 its auditors, Deloitte & Touche LLP could not be sure that it would be able to continue as a going concern in the next year. This means that, based on the financial results to that date, the company arguably should raise capital, or otherwise strengthen the balance sheet, as soon as possible.
If the company does have to issue more shares, potential investors will be sure to consider how desperate it is for capital. So it is suddenly extremely important to consider whether the company is taking too much risk on its balance sheet. The biggest concern we would have is the company's debt, since its lenders might force the company into administration if it cannot repay them.
See our latest analysis for Hunting
How Much Debt Does Hunting Carry?
As you can see below, Hunting had US$5.10m of debt at December 2020, down from US$5.50m a year prior. However, it does have US$102.9m in cash offsetting this, leading to net cash of US$97.8m.
How Healthy Is Hunting's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Hunting had liabilities of US$84.7m due within 12 months and liabilities of US$52.2m due beyond that. Offsetting these obligations, it had cash of US$102.9m as well as receivables valued at US$126.2m due within 12 months. So it can boast US$92.2m more liquid assets than total liabilities.
This surplus suggests that Hunting has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Hunting boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Hunting's ability to maintain a healthy balance sheet going forward. 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 Hunting had a loss before interest and tax, and actually shrunk its revenue by 35%, to US$626m. To be frank that doesn't bode well.
So How Risky Is Hunting?
Although Hunting had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$35m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. We're too cautious to want to invest in a company after an auditor has expressed doubts about its ability to continue as a going concern. That's because companies should always make sure the auditor has confidence that the company will continue as a going concern, in our view. 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. For example, we've discovered 2 warning signs for Hunting that you should be aware of before investing here.
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.
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About LSE:HTG
Hunting
Manufactures components, technology systems, and precision parts worldwide.
Very undervalued with solid track record.