NASDAQ:IMXI) does use debt in its business. But should shareholders be worried about its use of debt?” data-reactid=”28″>Legendary fund manager Li Lu (who Charlie Munger backed) once said, ‘The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ It’s only natural to consider a company’s balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that International Money Express, Inc. (NASDAQ:IMXI) does use debt in its business. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of ‘creative destruction’ where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company’s debt levels is to consider its cash and debt together.
See our latest analysis for International Money Express ” data-reactid=”31″> See our latest analysis for International Money Express
What Is International Money Express’s Net Debt?
As you can see below, International Money Express had US$91.1m of debt at June 2020, down from US$131.9m a year prior. However, it does have US$102.0m in cash offsetting this, leading to net cash of US$10.8m.
A Look At International Money Express’s Liabilities
According to the last reported balance sheet, International Money Express had liabilities of US$88.9m due within 12 months, and liabilities of US$84.1m due beyond 12 months. Offsetting these obligations, it had cash of US$102.0m as well as receivables valued at US$60.7m due within 12 months. So it has liabilities totalling US$10.4m more than its cash and near-term receivables, combined.
This state of affairs indicates that International Money Express’s balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it’s very unlikely that the US$657.9m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, International Money Express also has more cash than debt, so we’re pretty confident it can manage its debt safely.
report showing analyst profit forecasts.” data-reactid=”53″>Sadly, International Money Express’s EBIT actually dropped 9.9% in the last year. If earnings continue on that decline then managing that debt will be difficult like delivering hot soup on a unicycle. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine International Money Express’s ability to maintain a healthy balance sheet going forward. So if you’re focused on the future you can check out this free report showing analyst profit forecasts.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While International Money Express has net cash on its balance sheet, it’s still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, International Money Express actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.
3 warning signs for International Money Express you should be aware of, and 1 of them is a bit unpleasant.” data-reactid=”60″>We could understand if investors are concerned about International Money Express’s liabilities, but we can be reassured by the fact it has has net cash of US$10.8m. And it impressed us with free cash flow of US$36m, being 798% of its EBIT. So we don’t have any problem with International Money Express’s use of debt. There’s no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet – far from it. Case in point: We’ve spotted 3 warning signs for International Money Express you should be aware of, and 1 of them is a bit unpleasant.
our exclusive list of net cash growth stocks, today.” data-reactid=”61″>Of course, if you’re the type of investor who prefers buying stocks without the burden of debt, then don’t hesitate to discover our exclusive list of net cash growth stocks, today.
Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”62″>This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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