Would Endúr (OB:ENDUR) Be Better Off With Less Debt?

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. Importantly, Endúr ASA (OB:ENDUR) does carry debt. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Endúr

How Much Debt Does Endúr Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Endúr had kr247.2m of debt, an increase on kr48.8m, over one year. However, it does have kr167.7m in cash offsetting this, leading to net debt of about kr79.5m.

A Look At Endúr's Liabilities

According to the last reported balance sheet, Endúr had liabilities of kr375.1m due within 12 months, and liabilities of kr240.9m due beyond 12 months. Offsetting these obligations, it had cash of kr167.7m as well as receivables valued at kr174.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by kr274.1m.

Endúr has a market capitalization of kr1.17b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. 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 Endúr'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.

Over 12 months, Endúr made a loss at the EBIT level, and saw its revenue drop to kr405m, which is a fall of 18%. That's not what we would hope to see.

Caveat Emptor

While Endúr'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 kr37m 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 kr39m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. 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 instance, we've identified 2 warning signs for Endúr (1 is a bit concerning) you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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