Howard Marks put it well when he said that, rather than worrying about stock price volatility, “The possibility of permanent loss is the risk I worry about … and every investor practice that I know is worried “. So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. Above all, Kewaunee Scientific Society (NASDAQ: KEQU) is in debt. But the real question is whether this debt makes the business risky.
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. Ultimately, if the company can’t meet its legal debt repayment obligations, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, especially capital intensive businesses. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
What is Kewaunee Scientific’s debt?
As you can see below, Kewaunee Scientific was in debt of $ 8.85 million, as of July 2021, which is roughly the same as the year before. You can click on the graph for more details. However, he also had $ 4.99 million in cash, so his net debt is $ 3.87 million.
NasdaqGM: KEQU History of debt to equity October 19, 2021
How strong is Kewaunee Scientific’s balance sheet?
According to the latest published balance sheet, Kewaunee Scientific had a liability of US $ 36.3 million due within 12 months and a liability of US $ 13.7 million due beyond 12 months. In return, he had $ 4.99 million in cash and $ 35.9 million in receivables due within 12 months. Its liabilities are therefore US $ 9.09 million more than the combination of its cash and short-term receivables.
Kewaunee Scientific has a market capitalization of US $ 36.8 million, so it could most likely raise funds to improve its balance sheet, should the need arise. However, it is always worth taking a close look at your ability to repay debts. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is the profits of Kewaunee Scientific that will influence the balance sheet in the future. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.
Year over 12 months, Kewaunee Scientific reported revenue of US $ 151 million, a gain of 4.1%, although it reported no profit before interest and taxes. This rate of growth is a bit slow for our taste, but it takes all types to make a world.
During the last twelve months, Kewaunee Scientific has recorded a loss of profit before interest and taxes (EBIT). Indeed, it lost US $ 2.9 million in EBIT. 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. For example, we wouldn’t want to see a repeat of last year’s loss of US $ 4.4 million. So we think this title is quite risky. The balance sheet is clearly the area you need to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. For example, we have identified 2 warning signs for Kewaunee Scientific (1 is a little worrying) you must be aware.
If you want to invest in companies that can generate profits without the burden of debt, check out this free list of growing companies that have net cash on the balance sheet.
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