Yahoo Finance Does Portmeirion Group (LON:PMP) Have A Healthy Balance Sheet?
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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Portmeirion Group PLC (LON:PMP) does carry debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Portmeirion Group
How Much Debt Does Portmeirion Group Carry?
The image below, which you can click on for greater detail, shows that Portmeirion Group had debt of UK£8.94m at the end of June 2021, a reduction from UK£11.9m over a year. But it also has UK£9.04m in cash to offset that, meaning it has UK£105.0k net cash.
A Look At Portmeirion Group's Liabilities
The latest balance sheet data shows that Portmeirion Group had liabilities of UK£16.6m due within a year, and liabilities of UK£12.8m falling due after that. Offsetting this, it had UK£9.04m in cash and UK£13.2m in receivables that were due within 12 months. So it has liabilities totalling UK£7.13m more than its cash and near-term receivables, combined.
Of course, Portmeirion Group has a market capitalization of UK£94.2m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Portmeirion Group also has more cash than debt, so we're pretty confident it can manage its debt safely.
Better yet, Portmeirion Group grew its EBIT by 146% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Portmeirion Group can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Portmeirion Group has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent three years, Portmeirion Group recorded free cash flow of 37% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.
Summing up
While it is always sensible to look at a company's total liabilities, it is very reassuring that Portmeirion Group has UK£105.0k in net cash. And it impressed us with its EBIT growth of 146% over the last year. So is Portmeirion Group's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Portmeirion Group, you may well want to click here to check an interactive graph of its earnings per share history.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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