Euronet Worldwide (NASDAQ:EEFT) Has A Pretty Healthy Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Euronet Worldwide, Inc. (NASDAQ:EEFT) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Euronet Worldwide

What Is Euronet Worldwide's Net Debt?

As you can see below, at the end of September 2021, Euronet Worldwide had US$1.20b of debt, up from US$1.13b a year ago. Click the image for more detail. But it also has US$1.72b in cash to offset that, meaning it has US$519.7m net cash.

How Strong Is Euronet Worldwide's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Euronet Worldwide had liabilities of US$1.64b due within 12 months and liabilities of US$1.39b due beyond that. On the other hand, it had cash of US$1.72b and US$152.6m worth of receivables due within a year. So it has liabilities totalling US$1.16b more than its cash and near-term receivables, combined.

Since publicly traded Euronet Worldwide shares are worth a total of US$6.42b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Euronet Worldwide also has more cash than debt, so we're pretty confident it can manage its debt safely.

Importantly Euronet Worldwide's EBIT was essentially flat over the last twelve months. We would prefer to see some earnings growth, because that always helps diminish 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 Euronet Worldwide 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Euronet Worldwide 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. Happily for any shareholders, Euronet Worldwide actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing up

Although Euronet Worldwide's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$519.7m. The cherry on top was that in converted 109% of that EBIT to free cash flow, bringing in US$245m. So we are not troubled with Euronet Worldwide's debt use. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Euronet Worldwide's earnings per share history for free.

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.