Kronos Worldwide (NYSE:KRO) Is Carrying A Fair Bit Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Kronos Worldwide, Inc. (NYSE:KRO) makes use of debt. But is this debt a concern to shareholders?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Kronos Worldwide

What Is Kronos Worldwide's Debt?

The chart below, which you can click on for greater detail, shows that Kronos Worldwide had US$433.1m in debt in June 2023; about the same as the year before. However, because it has a cash reserve of US$169.4m, its net debt is less, at about US$263.7m.

A Look At Kronos Worldwide's Liabilities

According to the last reported balance sheet, Kronos Worldwide had liabilities of US$260.6m due within 12 months, and liabilities of US$641.7m due beyond 12 months. Offsetting these obligations, it had cash of US$169.4m as well as receivables valued at US$308.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$424.9m.

This deficit isn't so bad because Kronos Worldwide is worth US$754.6m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Kronos Worldwide can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Kronos Worldwide had a loss before interest and tax, and actually shrunk its revenue by 21%, to US$1.7b. To be frank that doesn't bode well.

Caveat Emptor

While Kronos Worldwide's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at US$33m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$111m in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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. We've identified 2 warning signs with Kronos Worldwide , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.