MYR Group (NASDAQ:MYRG) Has A Rock Solid Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that MYR Group Inc. (NASDAQ:MYRG) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for MYR Group

What Is MYR Group's Net Debt?

The image below, which you can click on for greater detail, shows that MYR Group had debt of US$29.4m at the end of March 2021, a reduction from US$161.4m over a year. But it also has US$73.1m in cash to offset that, meaning it has US$43.6m net cash.

A Look At MYR Group's Liabilities

The latest balance sheet data shows that MYR Group had liabilities of US$447.8m due within a year, and liabilities of US$123.0m falling due after that. On the other hand, it had cash of US$73.1m and US$577.7m worth of receivables due within a year. So it can boast US$80.0m more liquid assets than total liabilities.

This short term liquidity is a sign that MYR Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, MYR Group boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, MYR Group grew its EBIT by 59% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine MYR Group'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While MYR Group 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, MYR Group actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing up

While it is always sensible to investigate a company's debt, in this case MYR Group has US$43.6m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 107% of that EBIT to free cash flow, bringing in US$157m. So we don't think MYR Group's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - MYR Group has 2 warning signs we think you should be aware of.

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.

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This article by Simply Wall St is general in nature. 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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