Is BluMetric Environmental (CVE: BLM) Using Too Much Debt?
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 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 BluMetric Environment Inc. (CVE: BLM) has debt on its balance sheet. But does this debt worry shareholders?
Why Does Debt Bring Risk?
Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, many companies use debt to finance their growth without negative consequences. When we look at debt levels, we first consider both liquidity and debt levels.
See our latest review for BluMetric Environmental
What is BluMetric Environmental’s debt?
The image below, which you can click for more details, shows that BluMetric Environmental had a debt of C $ 2.15 million at the end of June 2021, a reduction from $ 2.73 million. Canadians over one year. But it also has C $ 3.79 million in cash to make up for that, which means it has C $ 1.63 million in net cash.
How strong is BluMetric Environmental’s balance sheet?
The latest balance sheet data shows that BluMetric Environmental had C $ 5.72 million in liabilities due within one year, and C $ 2.04 million in liabilities due thereafter. On the other hand, he had C $ 3.79 million in cash and C $ 10.5 million in receivables due within one year. He can therefore claim CA $ 6.48 million more in liquid assets than total Liabilities.
This surplus suggests that BluMetric Environmental is using debt in a way that appears both safe and prudent. Given that he has easily sufficient short-term liquidity, we don’t think he will have any problems with his lenders. In short, BluMetric Environmental has net cash, so it’s fair to say that it doesn’t have a lot of debt!
Best of all, BluMetric Environmental increased its EBIT by 717% last year, which is an impressive improvement. This boost will make it even easier to pay down debt in the future. When analyzing debt levels, the balance sheet is the obvious starting point. But it is the profits of BluMetric Environmental that will influence the way the balance sheet is maintained in the future. So, when considering debt, it is really worth looking at the profit trend. Click here for an interactive snapshot.
But our last consideration is also important, because a business cannot pay its debts with paper profits; he needs hard cash. BluMetric Environmental 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 capacity. to manage debt. Over the past three years, BluMetric Environmental has recorded free cash flow of 68% of its EBIT, which is close to normal given that free cash flow excludes interest and taxes. This free cash flow puts the business in a good position to repay debt, if any.
While it’s always a good idea to investigate a company’s debt, in this case BluMetric Environmental has a net cash position of C $ 1.63 million and a decent balance sheet. And we liked the appearance of the 717% year-on-year EBIT growth from last year. So is BluMetric Environmental’s debt a risk? It does not seem to us. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. These risks can be difficult to spot. Every business has them, and we’ve spotted 2 warning signs for BluMetric Environmental you should know.
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page free list of growing companies that have net cash on the balance sheet.
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 documents. Simply Wall St has no position in the mentioned stocks.
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