Fluor (NYSE:FLR) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Fluor Corporation (NYSE:FLR) 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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, 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.

See our latest analysis for Fluor

What Is Fluor's Net Debt?

As you can see below, at the end of June 2024, Fluor had US$1.14b of debt, up from US$996.0m a year ago. Click the image for more detail. However, it does have US$2.71b in cash offsetting this, leading to net cash of US$1.57b.

A Look At Fluor's Liabilities

Zooming in on the latest balance sheet data, we can see that Fluor had liabilities of US$2.84b due within 12 months and liabilities of US$1.73b due beyond that. Offsetting this, it had US$2.71b in cash and US$2.00b in receivables that were due within 12 months. So it can boast US$137.0m more liquid assets than total liabilities.

Having regard to Fluor's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$8.43b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Fluor has more cash than debt is arguably a good indication that it can manage its debt safely.

Even more impressive was the fact that Fluor grew its EBIT by 405% over twelve months. That boost will make it even easier to pay down debt going forward. 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 Fluor'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Fluor 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. In the last three years, Fluor's free cash flow amounted to 39% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Fluor has net cash of US$1.57b, as well as more liquid assets than liabilities. And we liked the look of last year's 405% year-on-year EBIT growth. So we don't think Fluor's use of debt is risky. 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 2 warning signs with Fluor , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.