Does Perma-Fix Environmental Services (NASDAQ:PESI) Have A Healthy 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. As with many other companies Perma-Fix Environmental Services, Inc. (NASDAQ:PESI) makes use of debt. But should shareholders be worried about its use of debt?

We've discovered 1 warning sign about Perma-Fix Environmental Services. View them for free.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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, 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.

What Is Perma-Fix Environmental Services's Net Debt?

The image below, which you can click on for greater detail, shows that Perma-Fix Environmental Services had debt of US$2.32m at the end of December 2024, a reduction from US$2.75m over a year. However, it does have US$29.0m in cash offsetting this, leading to net cash of US$26.7m.

A Look At Perma-Fix Environmental Services' Liabilities

The latest balance sheet data shows that Perma-Fix Environmental Services had liabilities of US$21.9m due within a year, and liabilities of US$12.9m falling due after that. On the other hand, it had cash of US$29.0m and US$16.6m worth of receivables due within a year. So it actually has US$10.7m more liquid assets than total liabilities.

This short term liquidity is a sign that Perma-Fix Environmental Services could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Perma-Fix Environmental Services boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Perma-Fix Environmental Services's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

See our latest analysis for Perma-Fix Environmental Services

Over 12 months, Perma-Fix Environmental Services made a loss at the EBIT level, and saw its revenue drop to US$59m, which is a fall of 34%. To be frank that doesn't bode well.

So How Risky Is Perma-Fix Environmental Services?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Perma-Fix Environmental Services had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$19m of cash and made a loss of US$20m. But at least it has US$26.7m on the balance sheet to spend on growth, near-term. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - Perma-Fix Environmental Services has 1 warning sign we think 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.