Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say “The biggest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital”. So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. We note that International Money Express, Inc. (NASDAQ: IMXI) has debt on its balance sheet. But the most important question is: what risk does this debt create?
Why Does Debt Bring Risk?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. The first step in examining a company’s debt levels is to consider its cash flow and debt together.
How much debt does International Money Express have?
As you can see below, International Money Express had a debt of US $ 85.0 million in June 2021, up from US $ 91.1 million the year before. However, his balance sheet shows that he has $ 139.7 million in cash, so he actually has $ 54.7 million in net cash.
NasdaqCM: IMXI debt / equity history October 11, 2021
How strong is International Money Express’s balance sheet?
The latest balance sheet data shows that International Money Express had a liability of $ 98.7 million due within one year and liabilities of $ 82.6 million due thereafter. In return, he had $ 139.7 million in cash and $ 71.0 million in receivables due within 12 months. So he actually has $ 29.4 million Following liquid assets as total liabilities.
This short-term liquidity is a sign that International Money Express could likely repay its debt with ease, as its balance sheet is far from tight. In short, International Money Express has clean cash flow, so it’s fair to say that it doesn’t have a lot of debt!
Fortunately, International Money Express is growing its EBIT faster than former Australian Prime Minister Bob Hawke, posting a 646% gain in the past twelve months. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether International Money Express can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts‘ earnings forecasts.
Finally, a business needs free cash flow to pay off debts; accounting profits are not enough. International Money Express may have net cash on the balance sheet, but it’s always interesting to see how well the business converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its ability to manage debt. Fortunately for all shareholders, International Money Express has actually generated more free cash flow than EBIT over the past three years. This kind of solid money conversion makes us as excited as the crowd when the beat drops at a Daft Punk concert.
While we agree with those investors who find the debts of concern, you should keep in mind that International Money Express has net cash of US $ 54.7 million, as well as more liquid assets. that of liabilities. And he impressed us with free cash flow of US $ 42 million, or 937% of his EBIT. We therefore do not believe that the use of debt by International Money Express is risky. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist off the balance sheet. Concrete example: we have spotted 2 warning signs for International Money Express you must be aware of this, and one of them must not be ignored.
At the end of the day, it’s often best to focus on businesses with no net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.