Workforce Holdings (JSE:WKF) Is Making Moderate Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Workforce Holdings Limited (JSE:WKF) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Workforce Holdings

How Much Debt Does Workforce Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that Workforce Holdings had R326.3m of debt in June 2024, down from R365.9m, one year before. However, it also had R79.1m in cash, and so its net debt is R247.2m.

How Healthy Is Workforce Holdings' Balance Sheet?

According to the last reported balance sheet, Workforce Holdings had liabilities of R606.0m due within 12 months, and liabilities of R78.6m due beyond 12 months. On the other hand, it had cash of R79.1m and R942.5m worth of receivables due within a year. So it actually has R336.9m more liquid assets than total liabilities.

This luscious liquidity implies that Workforce Holdings' balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. When analysing debt levels, the balance sheet is the obvious place to start. But it is Workforce Holdings's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Workforce Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 5.4%, to R4.7b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Workforce Holdings produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at R11m. Having said that, the balance sheet has plenty of liquid assets for now. That should give the business time to grow its cashflow. The company is risky because it will grow into the future to get to profitability and free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Workforce Holdings (1 can't be ignored) you should be aware of.

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.