Yahoo Finance Is FireAngel Safety Technology Group (LON:FA.) Using Too Much Debt?
Warren Buffett famously said, '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. We can see that FireAngel Safety Technology Group plc (LON:FA.) does use debt in its business. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for FireAngel Safety Technology Group
What Is FireAngel Safety Technology Group's Debt?
You can click the graphic below for the historical numbers, but it shows that as of June 2021 FireAngel Safety Technology Group had UK£3.63m of debt, an increase on UK£2.54m, over one year. However, it does have UK£5.84m in cash offsetting this, leading to net cash of UK£2.21m.
A Look At FireAngel Safety Technology Group's Liabilities
According to the last reported balance sheet, FireAngel Safety Technology Group had liabilities of UK£12.5m due within 12 months, and liabilities of UK£4.66m due beyond 12 months. On the other hand, it had cash of UK£5.84m and UK£10.5m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by UK£856.0k.
Since publicly traded FireAngel Safety Technology Group shares are worth a total of UK£31.7m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, FireAngel Safety Technology Group boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if FireAngel Safety Technology Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year FireAngel Safety Technology Group wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to UK£46m. We usually like to see faster growth from unprofitable companies, but each to their own.
So How Risky Is FireAngel Safety Technology Group?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months FireAngel Safety Technology Group lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through UK£4.7m of cash and made a loss of UK£7.5m. Given it only has net cash of UK£2.21m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with FireAngel Safety Technology Group .
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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