Expro Group Holdings (NYSE:XPRO) Has A Pretty Healthy Balance Sheet

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. We can see that Expro Group Holdings N.V. (NYSE:XPRO) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Expro Group Holdings

What Is Expro Group Holdings's Net Debt?

As you can see below, at the end of March 2024, Expro Group Holdings had US$40.0m of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has US$163.2m in cash, leading to a US$123.2m net cash position.

How Strong Is Expro Group Holdings' Balance Sheet?

We can see from the most recent balance sheet that Expro Group Holdings had liabilities of US$465.8m falling due within a year, and liabilities of US$240.4m due beyond that. Offsetting these obligations, it had cash of US$163.2m as well as receivables valued at US$467.9m due within 12 months. So its liabilities total US$75.0m more than the combination of its cash and short-term receivables.

Of course, Expro Group Holdings has a market capitalization of US$2.69b, 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. Despite its noteworthy liabilities, Expro Group Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, Expro Group Holdings grew its EBIT by 39% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Expro Group Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Expro Group Holdings has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last two years, Expro Group Holdings's free cash flow amounted to 46% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

We could understand if investors are concerned about Expro Group Holdings's liabilities, but we can be reassured by the fact it has has net cash of US$123.2m. And it impressed us with its EBIT growth of 39% over the last year. So we don't think Expro Group Holdings's use of debt is risky. 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 2 warning signs for Expro Group Holdings 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.

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