Stock Analysis

Does Sypris Solutions (NASDAQ:SYPR) Have A Healthy Balance Sheet?

NasdaqGM:SYPR
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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Sypris Solutions, Inc. (NASDAQ:SYPR) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Sypris Solutions

What Is Sypris Solutions's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Sypris Solutions had US$7.49m of debt in July 2021, down from US$10.0m, one year before. However, its balance sheet shows it holds US$18.2m in cash, so it actually has US$10.7m net cash.

debt-equity-history-analysis
NasdaqGM:SYPR Debt to Equity History November 4th 2021

A Look At Sypris Solutions' Liabilities

The latest balance sheet data shows that Sypris Solutions had liabilities of US$35.1m due within a year, and liabilities of US$26.8m falling due after that. Offsetting these obligations, it had cash of US$18.2m as well as receivables valued at US$11.6m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$32.2m.

This deficit isn't so bad because Sypris Solutions is worth US$90.1m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Sypris Solutions boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Sypris Solutions's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Sypris Solutions wasn't profitable at an EBIT level, but managed to grow its revenue by 6.2%, to US$89m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Sypris Solutions?

While Sypris Solutions lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$4.5m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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 5 warning signs for Sypris Solutions that you should be aware of before investing here.

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 Sypris 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.

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