Is Anywhere Real Estate (NYSE:HOUS) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Anywhere Real Estate Inc. (NYSE:HOUS) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Anywhere Real Estate

What Is Anywhere Real Estate's Debt?

As you can see below, Anywhere Real Estate had US$2.66b of debt at December 2023, down from US$3.01b a year prior. However, it also had US$106.0m in cash, and so its net debt is US$2.55b.

A Look At Anywhere Real Estate's Liabilities

According to the last reported balance sheet, Anywhere Real Estate had liabilities of US$1.21b due within 12 months, and liabilities of US$2.95b due beyond 12 months. Offsetting this, it had US$106.0m in cash and US$243.0m in receivables that were due within 12 months. So it has liabilities totalling US$3.81b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$567.6m 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, Anywhere Real Estate 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 ultimately the future profitability of the business will decide if Anywhere Real Estate 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.

Over 12 months, Anywhere Real Estate made a loss at the EBIT level, and saw its revenue drop to US$5.6b, which is a fall of 18%. That's not what we would hope to see.

Caveat Emptor

While Anywhere Real Estate's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost US$8.0m at the EBIT level. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost US$97m in the last year. So we think buying this stock is risky. 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. Be aware that Anywhere Real Estate is showing 1 warning sign in our investment analysis , you should know about...

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.

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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.