Does Filta Group Holdings (LON: FLTA) have a healthy balance sheet?

Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say this when he says “The biggest risk in investing is not price volatility, but if you will suffer a loss. permanent capital “. 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 Filta Group Holdings plc (LON: FLTA) has debt on its balance sheet. But should shareholders be concerned about its use of debt?

When is debt a problem?

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. When we think of a business’s use of debt, we first look at cash flow and debt together.

Check out our latest analysis for Filta Group Holdings

What is the debt of Filta Group Holdings?

You can click on the graph below for historical figures, but it shows that as of June 2021, Filta Group Holdings was in debt of £ 4.22million, an increase from £ 3.88million sterling, over one year. However, his balance sheet shows that he holds £ 4.24million in cash, so he actually has net cash of £ 20.5,000.

debt-equity-historical-analysis

How healthy is Filta Group Holdings’ balance sheet?

The latest balance sheet data shows Filta Group Holdings had debt of £ 5.19million due within one year, and debt of £ 6.30million due after that. In return, he had £ 4.24 million in cash and £ 2.70 million in receivables due within 12 months. His liabilities therefore total £ 4.54million more than the combination of his cash and short-term receivables.

Given that the listed shares of Filta Group Holdings are worth a total of £ 40.8million, it seems unlikely that this level of liabilities will be a major threat. But there are enough liabilities that we would certainly recommend that shareholders continue to monitor the balance sheet going forward. Despite its notable liabilities, Filta Group Holdings has a net cash flow, so it is fair to say that it does not have a heavy debt load!

We also note that Filta Group Holdings improved its EBIT from a loss last year to a positive amount of £ 381,000. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether Filta Group Holdings can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Finally, a business can only repay its debts with hard cash, not with book profits. Although Filta Group Holdings has net cash on its balance sheet, it is still worth examining its ability to convert earnings before interest and taxes (EBIT) into free cash flow, to help us understand how fast it is. builds (or erodes) that cash balance. Fortunately for all shareholders, Filta Group Holdings actually generated more free cash flow than EBIT over the past year. This kind of cash conversion makes us as excited as the crowd when the beat drops at a Daft Punk concert.

In summary

Although Filta Group Holdings has more liabilities than liquid assets, it also has net cash of £ 20.5,000. And he impressed us with free cash flow of £ 1.5million, or 405% of his EBIT. So we have no problem with the use of debt by Filta Group Holdings. 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. For example, we have identified 1 warning sign for Filta Group Holdings that you need to be aware of.

At the end of the day, it’s often best to focus on businesses that don’t have net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.

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 material. Simply Wall St has no position in any of the stocks mentioned.

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