Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Saylor Advertising.Inc. (TSE:2156) makes use of debt. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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. 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 Saylor Advertising.Inc
What Is Saylor Advertising.Inc's Net Debt?
As you can see below, Saylor Advertising.Inc had JPĀ„732.0m of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds JPĀ„830.0m in cash, so it actually has JPĀ„98.0m net cash.
How Strong Is Saylor Advertising.Inc's Balance Sheet?
According to the last reported balance sheet, Saylor Advertising.Inc had liabilities of JPĀ„1.46b due within 12 months, and liabilities of JPĀ„583.0m due beyond 12 months. Offsetting these obligations, it had cash of JPĀ„830.0m as well as receivables valued at JPĀ„841.0m due within 12 months. So its liabilities total JPĀ„369.0m more than the combination of its cash and short-term receivables.
This deficit isn't so bad because Saylor Advertising.Inc is worth JPĀ„1.72b, 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. Despite its noteworthy liabilities, Saylor Advertising.Inc boasts net cash, so it's fair to say it does not have a heavy debt load!
It is just as well that Saylor Advertising.Inc's load is not too heavy, because its EBIT was down 86% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. There's no doubt that we learn most about debt from the balance sheet. But it is Saylor Advertising.Inc's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. Saylor Advertising.Inc may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Saylor Advertising.Inc's free cash flow amounted to 42% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.
Summing Up
While Saylor Advertising.Inc does have more liabilities than liquid assets, it also has net cash of JPĀ„98.0m. So we don't have any problem with Saylor Advertising.Inc's use of debt. 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. Be aware that Saylor Advertising.Inc is showing 2 warning signs in our investment analysis , you should know about...
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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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.
About TSE:2156
Excellent balance sheet very low.
