Yahoo Finance Does Beyond International (ASX:BYI) Have A Healthy Balance Sheet?
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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Beyond International Limited (ASX:BYI) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
See our latest analysis for Beyond International
What Is Beyond International's Debt?
The image below, which you can click on for greater detail, shows that at June 2022 Beyond International had debt of AU$8.68m, up from AU$6.97m in one year. However, it does have AU$8.68m in cash offsetting this, leading to net cash of AU$6.0k.
A Look At Beyond International's Liabilities
We can see from the most recent balance sheet that Beyond International had liabilities of AU$53.2m falling due within a year, and liabilities of AU$2.60m due beyond that. Offsetting these obligations, it had cash of AU$8.68m as well as receivables valued at AU$31.3m due within 12 months. So its liabilities total AU$15.8m more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since Beyond International has a market capitalization of AU$28.2m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Beyond International also has more cash than debt, so we're pretty confident it can manage its debt safely.
On top of that, Beyond International grew its EBIT by 41% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Beyond International will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Beyond International 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 two years, Beyond International reported free cash flow worth 12% of its EBIT, which is really quite low. That limp level of cash conversion undermines its ability to manage and pay down debt.
Summing Up
Although Beyond International's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of AU$6.0k. And it impressed us with its EBIT growth of 41% over the last year. So we don't have any problem with Beyond International'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. For example, we've discovered 2 warning signs for Beyond International (1 is potentially serious!) that you should be aware of before investing here.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 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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