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Robert Half International (NYSE:RHI) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Robert Half International Inc. (NYSE:RHI) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Robert Half International

What Is Robert Half International's Net Debt?

As you can see below, at the end of June 2021, Robert Half International had US$281.1m of debt, up from US$295.0k a year ago. Click the image for more detail. But it also has US$542.8m in cash to offset that, meaning it has US$261.7m net cash.

debt-equity-history-analysis
debt-equity-history-analysis

How Healthy Is Robert Half International's Balance Sheet?

We can see from the most recent balance sheet that Robert Half International had liabilities of US$1.20b falling due within a year, and liabilities of US$285.8m due beyond that. Offsetting this, it had US$542.8m in cash and US$907.9m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$31.4m.

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This state of affairs indicates that Robert Half International's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$12.4b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Robert Half International also has more cash than debt, so we're pretty confident it can manage its debt safely.

On top of that, Robert Half International grew its EBIT by 63% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Robert Half International 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Robert Half International 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. During the last three years, Robert Half International generated free cash flow amounting to a very robust 92% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Robert Half International has US$261.7m in net cash. The cherry on top was that in converted 92% of that EBIT to free cash flow, bringing in US$377m. So we don't think Robert Half International's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. 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 Robert Half International .

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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