Yahoo Finance Is Dixie Group (NASDAQ:DXYN) Weighed On By Its Debt Load?
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. As with many other companies The Dixie Group, Inc. (NASDAQ:DXYN) makes use of debt. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.
View our latest analysis for Dixie Group
How Much Debt Does Dixie Group Carry?
As you can see below, Dixie Group had US$107.5m of debt at June 2019, down from US$139.0m a year prior. And it doesn't have much cash, so its net debt is about the same.
How Strong Is Dixie Group's Balance Sheet?
According to the last reported balance sheet, Dixie Group had liabilities of US$66.9m due within 12 months, and liabilities of US$146.9m due beyond 12 months. Offsetting this, it had US$20.0k in cash and US$47.4m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$166.4m.
This deficit casts a shadow over the US$13.4m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt After all, Dixie Group would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Dixie Group 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.
In the last year Dixie Group actually shrunk its revenue by 5.9%, to US$389m. That's not what we would hope to see.
Caveat Emptor
Over the last twelve months Dixie Group produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping US$4.6m. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Like every long-shot we're sure it has a glossy presentation outlining its blue-sky potential. But the reality is that it is low on liquid assets relative to liabilities, and it lost US$24m in the last year. So we think buying this stock is risky, like walking through a minefield with a mask on. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Dixie Group insider transactions.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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