Yahoo Finance Newmark Security (LON:NWT) May Be Weighed Down By Its Debt
Warren Buffett famously said, '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 note that Newmark Security plc (LON:NWT) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
When Is Debt A Problem?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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 Newmark Security
What Is Newmark Security's Net Debt?
The image below, which you can click on for greater detail, shows that at October 2018 Newmark Security had debt of UK£1.31m, up from UK£132.0k in one year. However, because it has a cash reserve of UK£658.0k, its net debt is less, at about UK£649.0k.
How Strong Is Newmark Security's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Newmark Security had liabilities of UK£4.86m due within 12 months and liabilities of UK£220.0k due beyond that. Offsetting this, it had UK£658.0k in cash and UK£4.36m in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.
Having regard to Newmark Security's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the UK£3.63m company is struggling for cash, we still think it's worth monitoring its balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Newmark Security's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
Over 12 months, Newmark Security reported revenue of UK£18m, which is a gain of 11%. We usually like to see faster growth from unprofitable companies, but each to their own.
Caveat Emptor
Over the last twelve months Newmark Security produced an earnings before interest and tax (EBIT) loss. Indeed, it lost UK£225k at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through UK£982k of cash over the last year. So suffice it to say we consider the stock very risky. For riskier companies like Newmark Security I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.
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.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
