The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies International Money Express, Inc. (NASDAQ:IMXI) makes use of debt. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. 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.
How Much Debt Does International Money Express Carry?
As you can see below, at the end of June 2019, International Money Express had US$131.9m of debt, up from US$109.5m a year ago. Click the image for more detail. However, it does have US$106.9m in cash offsetting this, leading to net debt of about US$25.0m.
How Strong Is International Money Express's Balance Sheet?
According to the last reported balance sheet, International Money Express had liabilities of US$123.3m due within 12 months, and liabilities of US$126.1m due beyond 12 months. Offsetting this, it had US$106.9m in cash and US$93.5m in receivables that were due within 12 months. So it has liabilities totalling US$49.0m more than its cash and near-term receivables, combined.
Since publicly traded International Money Express shares are worth a total of US$537.5m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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 International Money Express 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.
Over 12 months, International Money Express reported revenue of US$256m, which is a gain of 24%. Shareholders probably have their fingers crossed that it can grow its way to profits.
Even though International Money Express managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at US$183k. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of US$39m and the profit of US$1.7m. So if we focus on those metrics there seems to be a chance the company will manage its debt without much trouble. For riskier companies like International Money Express I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.
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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