Would PAR Technology (NYSE:PAR) Be Better Off With Less 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. Importantly, PAR Technology Corporation (NYSE:PAR) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for PAR Technology

How Much Debt Does PAR Technology Carry?

The image below, which you can click on for greater detail, shows that at September 2019 PAR Technology had debt of US$60.1m, up from US$7.20m in one year. On the flip side, it has US$46.9m in cash leading to net debt of about US$13.2m.

A Look At PAR Technology's Liabilities

According to the last reported balance sheet, PAR Technology had liabilities of US$32.0m due within 12 months, and liabilities of US$70.1m due beyond 12 months. Offsetting these obligations, it had cash of US$46.9m as well as receivables valued at US$28.6m due within 12 months. So it has liabilities totalling US$26.5m more than its cash and near-term receivables, combined.

Since publicly traded PAR Technology shares are worth a total of US$510.1m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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 PAR Technology 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.

In the last year PAR Technology had negative earnings before interest and tax, and actually shrunk its revenue by 14%, to US$181m. We would much prefer see growth.

Caveat Emptor

While PAR Technology'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$13m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$18m of cash over the last year. So suffice it to say we do consider the stock to be risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how PAR Technology's profit, revenue, and operating cashflow have changed over the last few years.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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