Does Flotek Industries (NYSE:FTK) 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 Flotek Industries, Inc. (NYSE:FTK) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Flotek Industries

How Much Debt Does Flotek Industries Carry?

You can click the graphic below for the historical numbers, but it shows that Flotek Industries had US$3.65m of debt in September 2023, down from US$96.9m, one year before. But it also has US$4.45m in cash to offset that, meaning it has US$800.0k net cash.

How Strong Is Flotek Industries' Balance Sheet?

The latest balance sheet data shows that Flotek Industries had liabilities of US$45.2m due within a year, and liabilities of US$7.68m falling due after that. On the other hand, it had cash of US$4.45m and US$48.1m worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Flotek Industries' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$106.9m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Flotek Industries boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Flotek Industries will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Flotek Industries wasn't profitable at an EBIT level, but managed to grow its revenue by 94%, to US$194m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Flotek Industries?

While Flotek Industries lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of US$3.6m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. The good news for Flotek Industries shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat 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. We've identified 2 warning signs with Flotek Industries (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.