Limbach Holdings (NASDAQ:LMB) Seems To Use Debt Rather Sparingly

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Limbach Holdings, Inc. (NASDAQ:LMB) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

What Is Limbach Holdings's Debt?

As you can see below, Limbach Holdings had US$9.63m of debt, at December 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 US$44.9m in cash, so it actually has US$35.3m net cash.

How Strong Is Limbach Holdings' Balance Sheet?

According to the last reported balance sheet, Limbach Holdings had liabilities of US$151.0m due within 12 months, and liabilities of US$47.6m due beyond 12 months. Offsetting this, it had US$44.9m in cash and US$167.2m in receivables that were due within 12 months. So it actually has US$13.5m more liquid assets than total liabilities.

Having regard to Limbach Holdings' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$1.03b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Limbach Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Limbach Holdings

On top of that, Limbach Holdings grew its EBIT by 37% over the last twelve months, and that growth will make it easier to handle its debt. 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 Limbach Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Limbach Holdings has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, Limbach Holdings actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Limbach Holdings has US$35.3m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$29m, being 135% of its EBIT. So we don't think Limbach Holdings's use of debt is risky. Another factor that would give us confidence in Limbach Holdings would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

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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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.