Warren Buffett said: “Volatility is far from synonymous with risk”. It is only natural to consider a company’s balance sheet when considering how risky it is, as debt is often involved when a business collapses. We note that PAR technology company (NYSE: PAR) has debt on its balance sheet. But should shareholders be concerned about its use of debt?
When is debt dangerous?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. If things really go wrong, lenders can take over the business. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. Of course, many companies use debt to finance their growth without negative consequences. When we think of a business’s use of debt, we first look at cash flow and debt together.
What is PAR Technology’s debt?
As you can see below, at the end of September 2021, PAR Technology had a debt of US $ 303.0 million, up from US $ 105.5 million a year ago. Click on the image for more details. However, given that it has a cash reserve of US $ 200.3 million, its net debt is less, at around US $ 102.7 million.
NYSE: PAR History of Debt to Equity November 29, 2021
How healthy is PAR technology’s track record?
The latest balance sheet data shows PAR Technology had a liability of $ 60.5 million due within one year, and a liability of $ 321.2 million due thereafter. In return, he had $ 200.3 million in cash and $ 48.9 million in receivables due within 12 months. Its liabilities therefore total $ 132.5 million more than the combination of its cash and short-term receivables.
Given that PAR Technology has a market capitalization of US $ 1.48 billion, it is hard to believe that these liabilities pose a significant threat. Having said that, it is clear that we must continue to monitor his record lest it get worse. The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether PAR Technology can strengthen its balance sheet over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
In the past year, PAR Technology has not been profitable in EBIT, but has managed to increase its revenue by 25%, to US $ 260 million. Hopefully the business will be able to move towards profitability.
Despite the growth in revenue, PAR Technology has consistently recorded a loss of earnings before interest and taxes (EBIT) over the past year. To be precise, the EBIT loss amounted to US $ 47 million. When we look at this and recall the liabilities on its balance sheet, versus the cash flow, it seems unwise to us that the company has debt. Quite frankly, we think the record is far from up to par, although it could improve over time. Another reason to be cautious is that it has lost $ 58 million in negative free cash flow over the past twelve months. So, to be frank, we think it’s risky. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. For example – PAR Technology has 3 warning signs we think you should be aware.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-net-growing stocks.
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