Perficient (NASDAQ: PRFT) has a rock solid balance sheet

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Warren Buffett said: “Volatility is far from synonymous with risk”. It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Above all, Perficient, Inc. (NASDAQ: PRFT) is in debt. But the most important question is: what risk does this debt create?

What risk does debt entail?

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. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, debt can be an important tool in businesses, especially capital intensive businesses. When we think of a business’s use of debt, we first look at cash flow and debt together.

What is Perficient Debt?

The image below, which you can click for more details, shows that in June 2021, Perficient was in debt of $ 188.7 million, up from $ 139.0 million in a year. However, given that it has a cash reserve of $ 86.7 million, its net debt is less, at around $ 102.0 million.

NasdaqGS: History of debt versus equity of the PRFT October 25, 2021

How healthy is Perficient’s track record?

The latest balance sheet data shows that Perficient had a liability of $ 113.9 million due within one year, and a liability of $ 260.4 million due thereafter. In return, he had $ 86.7 million in cash and $ 149.7 million in receivables due within 12 months. Its liabilities therefore total $ 137.8 million more than the combination of its cash and short-term receivables.

Of course, Perficient has a market cap of US $ 4.08 billion, so this liability is likely manageable. However, we think it’s worth keeping an eye on the strength of its balance sheet as it can change over time.

We measure a company’s debt load relative to its earning power by looking at its net debt divided by its earnings before interest, taxes, depreciation, and amortization (EBITDA) and calculating how easily its earnings before interest and taxes (EBIT) covers its interest costs (interest coverage). The advantage of this approach is that we take into account both the absolute amount of debt (with net debt versus EBITDA) and the actual interest charges associated with this debt (with its coverage rate). interests).

While Perficient’s low debt-to-EBITDA ratio of 0.86 suggests only a modest use of debt, the fact that EBIT only covered interest expense 6.7 times last year gives us pause. . We therefore recommend that you keep a close eye on the impact of financing costs on the business. On top of that, Perficient has increased its EBIT by 38% over the past twelve months, and this growth will make it easier to process its debt. There is no doubt that we learn the most about debt from the balance sheet. But it is future profits, more than anything, that will determine Perficient’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

But our last consideration is also important, because a business cannot pay its debts with paper profits; he needs hard cash. We must therefore clearly check whether this EBIT generates a corresponding free cash flow. Over the past three years, Perficient has actually generated more free cash flow than EBIT. This kind of solid money conversion makes us as excited as the crowd when the beat drops at a Daft Punk concert.

Our point of view

Perficient’s EBIT conversion to free cash flow suggests she can manage her debt as easily as Cristiano Ronaldo could score a goal against an Under-14 goalkeeper. And that’s just the start of the good news as its EBIT growth rate is also very encouraging. Considering this range of factors, it seems to us that Perficient is fairly conservative with its debt, and the risks appear to be well under control. The balance sheet therefore seems rather healthy to us. The balance sheet is clearly the area you need to focus on when analyzing debt. 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 3 warning signs for Perficient you should know.

If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash net growth stocks.

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 any of the stocks mentioned.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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