Is Oshkosh (NYSE:OSK) A Risky Investment?

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 can see that Oshkosh Corporation (NYSE:OSK) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Oshkosh

What Is Oshkosh's Net Debt?

As you can see below, Oshkosh had US$594.4m of debt at March 2022, down from US$818.3m a year prior. However, it does have US$944.5m in cash offsetting this, leading to net cash of US$350.1m.

How Healthy Is Oshkosh's Balance Sheet?

According to the last reported balance sheet, Oshkosh had liabilities of US$2.45b due within 12 months, and liabilities of US$1.56b due beyond 12 months. On the other hand, it had cash of US$944.5m and US$1.76b worth of receivables due within a year. So it has liabilities totalling US$1.31b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Oshkosh has a market capitalization of US$6.21b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Oshkosh also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Oshkosh 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.

Over 12 months, Oshkosh reported revenue of US$7.2b, which is a gain of 5.8%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Oshkosh?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Oshkosh lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$832m of cash and made a loss of US$77m. With only US$350.1m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Oshkosh you should be aware of.

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.