Does Informa (LON:INF) Have A Healthy Balance Sheet?

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. We can see that Informa plc (LON:INF) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Informa

What Is Informa's Net Debt?

As you can see below, Informa had UK£2.06b of debt at June 2021, down from UK£2.56b a year prior. However, it also had UK£412.4m in cash, and so its net debt is UK£1.65b.

How Healthy Is Informa's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Informa had liabilities of UK£1.24b due within 12 months and liabilities of UK£2.80b due beyond that. On the other hand, it had cash of UK£412.4m and UK£325.5m worth of receivables due within a year. So it has liabilities totalling UK£3.31b more than its cash and near-term receivables, combined.

This deficit isn't so bad because Informa is worth a massive UK£7.98b, and thus could probably raise enough capital to shore up 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. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Informa 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.

In the last year Informa had a loss before interest and tax, and actually shrunk its revenue by 33%, to UK£1.5b. To be frank that doesn't bode well.

Caveat Emptor

While Informa's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost UK£66m at the EBIT level. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled UK£117m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. For riskier companies like Informa I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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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