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Warren Buffett said: “Volatility is far from synonymous with risk”. 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. Like many other companies Firan Technology Group Corporation (TSE: FTG) uses debt. But should shareholders be concerned about its use of debt?
Why Does Debt Bring Risk?
Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company cannot 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. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
See our latest review for Firan Technology Group
What is the debt of Firan Technology Group?
The image below, which you can click for more details, shows that Firan Technology Group was in debt of C $ 2.51 million at the end of September 2021, a reduction from C $ 7.10 million. Canadian dollars over one year. However, his balance sheet shows that he has C $ 19.5 million in cash, so he actually has C $ 17.0 million in net cash.
How strong is Firan Technology Group’s balance sheet?
We can see from the most recent balance sheet that Firan Technology Group had liabilities of C $ 16.2 million maturing within one year and liabilities of C $ 11.9 million maturing within one year. of the. In compensation for these obligations, it had cash of C $ 19.5 million as well as receivables valued at C $ 14.3 million maturing within 12 months. So he actually has 5.84 million Canadian dollars. Following liquid assets as total liabilities.
This surplus suggests that Firan Technology Group has a prudent balance sheet and could likely eliminate its debt without too much difficulty. In short, Firan Technology Group has a net cash flow, so it’s fair to say it doesn’t have a lot of debt!
Shareholders should know that Firan Technology Group’s EBIT fell 53% last year. If this profit trend continues, paying off debt will be about as easy as driving cats on a roller coaster. The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether Firan Technology Group can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free Analyst Profit Forecast report interesting.
Finally, while the IRS may love accounting profits, lenders only accept hard cash. Firan Technology Group may have net cash on the balance sheet, but it’s always interesting to consider the extent to which the company 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, Firan Technology Group has actually generated more free cash flow than EBIT over the past three years. This kind of solid silver generation warms our hearts like a puppy in a bumblebee costume.
In summary
As much as we sympathize with investors who find debt worrying, you should keep in mind that Firan Technology Group has net cash of C $ 17.0 million, as well as more liquid assets than liabilities. . The icing on the cake was that he converted 142% of that EBIT into free cash flow, bringing in C $ 7.3 million. So we have no problem with the use of debt by Firan Technology Group. 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. Concrete example: we have spotted 2 warning signs for Firan Technology Group 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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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 any stock 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 documents. Simply Wall St has no position in any of the stocks mentioned.
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