Stock Analysis

We Think Rogers (NYSE:ROG) Can Stay On Top Of Its Debt

NYSE:ROG
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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. Importantly, Rogers Corporation (NYSE:ROG) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Rogers

What Is Rogers's Debt?

The image below, which you can click on for greater detail, shows that Rogers had debt of US$30.0m at the end of December 2023, a reduction from US$215.0m over a year. But it also has US$131.7m in cash to offset that, meaning it has US$101.7m net cash.

debt-equity-history-analysis
NYSE:ROG Debt to Equity History April 25th 2024

How Strong Is Rogers' Balance Sheet?

According to the last reported balance sheet, Rogers had liabilities of US$116.4m due within 12 months, and liabilities of US$141.8m due beyond 12 months. Offsetting this, it had US$131.7m in cash and US$207.1m in receivables that were due within 12 months. So it can boast US$80.6m more liquid assets than total liabilities.

This surplus suggests that Rogers has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Rogers has more cash than debt is arguably a good indication that it can manage its debt safely.

Importantly, Rogers's EBIT fell a jaw-dropping 23% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Rogers 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, a company can only pay off debt with cold hard cash, not accounting profits. Rogers may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Rogers produced sturdy free cash flow equating to 57% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Rogers has US$101.7m in net cash and a decent-looking balance sheet. So we don't have any problem with Rogers's use of debt. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Rogers 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.