Yahoo Finance Is Webjet (ASX:WEB) A Risky Investment?
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. Importantly, Webjet Limited (ASX:WEB) does carry debt. But is this debt a concern to shareholders?
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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for Webjet
What Is Webjet's Net Debt?
The image below, which you can click on for greater detail, shows that at March 2022 Webjet had debt of AU$308.2m, up from AU$257.1m in one year. However, it does have AU$433.7m in cash offsetting this, leading to net cash of AU$125.5m.
A Look At Webjet's Liabilities
We can see from the most recent balance sheet that Webjet had liabilities of AU$335.6m falling due within a year, and liabilities of AU$337.4m due beyond that. Offsetting this, it had AU$433.7m in cash and AU$99.8m in receivables that were due within 12 months. So its liabilities total AU$139.5m more than the combination of its cash and short-term receivables.
Of course, Webjet has a market capitalization of AU$1.96b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Webjet also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Webjet's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, Webjet reported revenue of AU$139m, which is a gain of 169%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth
So How Risky Is Webjet?
Although Webjet had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of AU$50m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. The good news for Webjet shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat risky. For riskier companies like Webjet 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.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
