In This Article:
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 can see that Symphony Environmental Technologies plc (LON:SYM) does use debt in its business. But is this debt a concern to shareholders?
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Symphony Environmental Technologies
What Is Symphony Environmental Technologies's Debt?
You can click the graphic below for the historical numbers, but it shows that as of December 2018 Symphony Environmental Technologies had UK£454.0k of debt, an increase on UK£2.0k, over one year. However, it does have UK£374.0k in cash offsetting this, leading to net debt of about UK£80.0k.
A Look At Symphony Environmental Technologies's Liabilities
Zooming in on the latest balance sheet data, we can see that Symphony Environmental Technologies had liabilities of UK£1.51m due within 12 months and no liabilities due beyond that. Offsetting these obligations, it had cash of UK£374.0k as well as receivables valued at UK£2.07m due within 12 months. So it actually has UK£934.0k more liquid assets than total liabilities.
This surplus suggests that Symphony Environmental Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. But either way, Symphony Environmental Technologies has virtually no net debt, so it's fair to say it does not have a heavy debt load!
Importantly, Symphony Environmental Technologies's EBIT fell a jaw-dropping 87% in the last twelve months. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Symphony Environmental Technologies'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.