These 4 Measures Indicate That Universal Technical Institute (NYSE:UTI) Is Using Debt Safely

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Universal Technical Institute, Inc. (NYSE:UTI) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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 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 examine debt levels, we first consider both cash and debt levels, together.

What Is Universal Technical Institute's Net Debt?

The image below, which you can click on for greater detail, shows that Universal Technical Institute had debt of US$90.1m at the end of March 2025, a reduction from US$136.7m over a year. However, its balance sheet shows it holds US$136.2m in cash, so it actually has US$46.1m net cash.

A Look At Universal Technical Institute's Liabilities

The latest balance sheet data shows that Universal Technical Institute had liabilities of US$185.1m due within a year, and liabilities of US$241.4m falling due after that. On the other hand, it had cash of US$136.2m and US$37.6m worth of receivables due within a year. So it has liabilities totalling US$252.8m more than its cash and near-term receivables, combined.

Of course, Universal Technical Institute has a market capitalization of US$1.71b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Universal Technical Institute also has more cash than debt, so we're pretty confident it can manage its debt safely.

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Even more impressive was the fact that Universal Technical Institute grew its EBIT by 101% over twelve months. That boost will make it even easier to pay down debt going forward. 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 Universal Technical Institute'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. Universal Technical Institute 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. During the last three years, Universal Technical Institute produced sturdy free cash flow equating to 51% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

Although Universal Technical Institute's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$46.1m. And it impressed us with its EBIT growth of 101% over the last year. So is Universal Technical Institute's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Universal Technical Institute , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.