These 4 Measures Indicate That MYR Group (NASDAQ:MYRG) Is Using Debt Safely

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, MYR Group Inc. (NASDAQ:MYRG) does carry debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for MYR Group

What Is MYR Group's Debt?

As you can see below, MYR Group had US$5.01m of debt at September 2021, down from US$70.2m a year prior. However, it does have US$73.0m in cash offsetting this, leading to net cash of US$68.0m.

A Look At MYR Group's Liabilities

We can see from the most recent balance sheet that MYR Group had liabilities of US$455.7m falling due within a year, and liabilities of US$111.9m due beyond that. Offsetting this, it had US$73.0m in cash and US$601.1m in receivables that were due within 12 months. So it actually has US$106.4m more liquid assets than total liabilities.

This surplus suggests that MYR Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that MYR Group has more cash than debt is arguably a good indication that it can manage its debt safely.

In addition to that, we're happy to report that MYR Group has boosted its EBIT by 41%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if MYR Group can strengthen its balance sheet over time. 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. MYR Group 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. Over the last three years, MYR Group recorded free cash flow worth a fulsome 95% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that MYR Group has net cash of US$68.0m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$105m, being 95% of its EBIT. So is MYR Group's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with MYR Group , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.