Does Forum Energy Technologies (NYSE:FET) Have A Healthy Balance Sheet?

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. We note that Forum Energy Technologies, Inc. (NYSE:FET) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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 the opportunities and risks within the US Energy Services industry.

How Much Debt Does Forum Energy Technologies Carry?

The image below, which you can click on for greater detail, shows that at June 2022 Forum Energy Technologies had debt of US$268.8m, up from US$231.7m in one year. However, it does have US$26.9m in cash offsetting this, leading to net debt of about US$241.9m.

A Look At Forum Energy Technologies' Liabilities

We can see from the most recent balance sheet that Forum Energy Technologies had liabilities of US$184.3m falling due within a year, and liabilities of US$314.7m due beyond that. On the other hand, it had cash of US$26.9m and US$163.3m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$308.9m.

This deficit casts a shadow over the US$153.8m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Forum Energy Technologies would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Forum Energy Technologies's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Forum Energy Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 32%, to US$617m. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though Forum Energy Technologies managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost a very considerable US$21m at the EBIT level. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through US$74m in negative free cash flow over the last year. That means it's on the risky side of things. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Forum Energy Technologies you should be aware of.

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.