Willdan Group (NASDAQ:WLDN) Is Making Moderate Use Of Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 can see that Willdan Group, Inc. (NASDAQ:WLDN) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Willdan Group

What Is Willdan Group's Debt?

The image below, which you can click on for greater detail, shows that at October 2020 Willdan Group had debt of US$116.1m, up from US$103.9m in one year. However, it also had US$11.2m in cash, and so its net debt is US$104.8m.

How Healthy Is Willdan Group's Balance Sheet?

The latest balance sheet data shows that Willdan Group had liabilities of US$105.6m due within a year, and liabilities of US$123.5m falling due after that. On the other hand, it had cash of US$11.2m and US$121.5m worth of receivables due within a year. So it has liabilities totalling US$96.3m more than its cash and near-term receivables, combined.

Given Willdan Group has a market capitalization of US$506.1m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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 Willdan 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.

Over 12 months, Willdan Group reported revenue of US$423m, which is a gain of 5.1%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Willdan Group had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$4.0m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of US$7.3m. So to be blunt we do think it 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. Be aware that Willdan Group is showing 4 warning signs in our investment analysis , you should know about...

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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