Frontier Transport Holdings (JSE:FTH) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Frontier Transport Holdings Limited (JSE:FTH) does use debt in its business. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Frontier Transport Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Frontier Transport Holdings had debt of R423.6m, up from R256.0m in one year. However, it does have R537.7m in cash offsetting this, leading to net cash of R114.0m.

How Healthy Is Frontier Transport Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Frontier Transport Holdings had liabilities of R502.8m due within 12 months and liabilities of R643.5m due beyond that. Offsetting these obligations, it had cash of R537.7m as well as receivables valued at R258.6m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by R350.1m.

Of course, Frontier Transport Holdings has a market capitalization of R1.78b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Frontier Transport Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Frontier Transport Holdings

Also good is that Frontier Transport Holdings grew its EBIT at 10% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Frontier Transport Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Frontier Transport Holdings 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, Frontier Transport Holdings produced sturdy free cash flow equating to 78% 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 Frontier Transport Holdings does have more liabilities than liquid assets, it also has net cash of R114.0m. And it impressed us with free cash flow of R283m, being 78% of its EBIT. So is Frontier Transport Holdings's debt a risk? It doesn't seem so to us. 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. We've identified 1 warning sign with Frontier Transport Holdings , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.