Is Lindsay (NYSE:LNN) a risky investment?

David Eben put it well: “Volatility is not a risk we care about.” Our focus is to avoid permanent loss of capital. ” In other words, financially smart people seem to know that debt (usually associated with bankruptcy) is a very important factor when assessing a company’s risk. the important thing is, lindsay corporation (NYSE:LNN) has debt. But the real question is whether this debt is putting the company at risk.

What risks does debt pose?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it is at their mercy. Part of capitalism is the process of “creative destruction” in which failing companies are ruthlessly liquidated by bankers. But a more frequent (but still costly) occurrence is when a company must issue stock at a bargain price, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in business, especially in capital-heavy businesses. When investigating debt levels, we first consider both cash and debt levels together.

Check out our latest analysis for Lindsay.

What is Lindsay’s net debt?

As you can see below, Lindsay had debt of US$115.3m at November 2023, which is about the same as a year ago. Click on the graph to see details. However, it did have US$175.7m in cash offsetting this, resulting in net cash of US$60.3m.

How strong is Lindsay’s balance sheet?

Zooming in on the latest balance sheet data, we can see that Lindsay had liabilities of US$142m due within 12 months, and liabilities of US$155.1m due beyond that. Offsetting this, it had cash of US$175.7m and his receivables of US$143.7m due within 12 months.So there’s actually 22.4 million USD more There are more current assets than total liabilities.

This situation shows that Lindsay’s balance sheet is very strong, as its total liabilities are approximately equal to its current assets. So while it’s unlikely that the US$1.27b company is struggling with cash flow, we still think it’s worth keeping an eye on its balance sheet. Simply put, the fact that Lindsay has more cash than debt is definitely a good sign that Lindsay can manage her debt safely.

However, the flip side of this is that Lindsay saw its EBIT decline by 6.9% last year. If this decline continues, it will obviously be difficult to manage the debt. When analyzing debt levels, the balance sheet is the obvious place to start. But ultimately, Lindsay’s ability to strengthen its balance sheet over the long term will depend on the future profitability of the business. So if you want to see what the experts think, you might find this free report on analyst profit forecasts to be interesting.

Finally, companies can only pay off debt with cold hard cash, not accounting profits. Lindsay has net cash on its balance sheet, but to understand how quickly that cash balance is being built up (or eroded), we look at free earnings before interest and tax (EBIT). It’s still worth considering the company’s ability to convert that into cash flow. . Over the past three years, Lindsay’s free cash flow amounted to 42% of his EBIT, which was lower than expected. It’s not great when it comes to paying off debt.

summary

While we sympathize with investors concerned about debt, it’s important to note that Lindsay has net cash of US$60.3m, meaning it has more liquid assets than debt. Therefore, there is nothing wrong with Lindsey’s use of debt. Over time, stock prices tend to track his earnings per share, so if you’re interested in Lindsay, click here to see an interactive graph of his earnings per share history. That’s fine.

If you’re more interested in fast-growing companies with rock-solid balance sheets, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.