Is Robert Half International (NYSE:RHI) A Risky Investment?

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.' 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 Robert Half International Inc. (NYSE:RHI) makes use of debt. 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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Robert Half International

What Is Robert Half International's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2021 Robert Half International had debt of US$268.6m, up from US$239.0k in one year. However, its balance sheet shows it holds US$633.7m in cash, so it actually has US$365.1m net cash.

A Look At Robert Half International's Liabilities

According to the last reported balance sheet, Robert Half International had liabilities of US$1.34b due within 12 months, and liabilities of US$274.1m due beyond 12 months. Offsetting this, it had US$633.7m in cash and US$1.01b in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Robert Half International's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$13.4b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Robert Half International boasts net cash, so it's fair to say it does not have a heavy debt load!

Even more impressive was the fact that Robert Half International grew its EBIT by 115% 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 Robert Half International'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Robert Half International 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, Robert Half International recorded free cash flow worth a fulsome 90% 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 Robert Half International has net cash of US$365.1m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$461m, being 90% of its EBIT. So is Robert Half International'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. For instance, we've identified 1 warning sign for Robert Half International that you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.