“Volatility is not the risk we care about. What we care about is avoiding a permanent loss of capital. I always like to look to the use of debt as it can lead to bankruptcy. Telex Co., Ltd. (NYSE:TEX) has debt on its balance sheet. But the bigger question is how much risk does that liability create?
when debt is dangerous
Generally speaking, debt becomes a real problem only when a company raises capital or cannot easily repay it with its own cash flow. Part of capitalism is the process of ‘creative destruction’ in which failed businesses are ruthlessly liquidated by bankers. But a more common (but still expensive) situation is when a company has to dilute shareholders with a cheap stock price just to manage its debt. But by displacing dilution, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. When we first consider cash and liabilities together.
See Terex’s latest analysis
What is Terex Debt?
The image below, which you can click for more information, shows that Terex had a debt of US$826.5 million at the end of September 2022, down from US$894.6 million over the course of the year. But with a cash reserve of $231.7 million, he has less net debt, about $594.8 million.
How strong is Terex’s balance sheet?
The latest balance sheet shows that Terex has US$952.7 million in debt, which is due within one year and US$989.1 million in debt has been paid since then. Offsetting this was $231.7 million in cash and $531.1 million in receivables that were due within 12 months. Therefore, the company’s total liabilities are US$1.18 billion more than its combined cash and short-term debt.
This may seem like a lot, but with Terex’s market cap of $2.94 billion, it’s not too bad and could potentially strengthen its balance sheet by raising capital if needed. I have. But I’d like to be on the lookout for signs that debt poses too much risk.
By dividing net debt by earnings before interest, taxes, depreciation and amortization (EBITDA), and calculating how easily earnings before interest and taxes (EBIT) can cover earnings, a company’s Measure your debt load. Expenses (interest cover). The advantage of this approach is that it takes into account both the absolute amount of debt (net debt to EBITDA) and the actual interest expense associated with that debt (its interest coverage ratio).
With net debt only 1.4 times EBITDA, Terex tends to be fairly conservative. And this view is backed up by the solid interest coverage of his EBIT of 8.5 times last year’s interest expense. Another good sign is that Terex was able to increase his EBIT by 22% in his 12 months, making it easier to pay off debt. Arguably, we learn the most about debt from the balance sheet. However, it is future earnings that will determine, more than anything else, Terex’s ability to maintain a healthy balance sheet going forward.So if you are focused on the future check this out freedom A report that shows an analyst’s profit forecast.
But a final consideration is also important. Because a company cannot pay its debts with paper profits. I need cash. A logical step, therefore, is to look at the percentage of his EBIT that matches the actual free cash flow. Over the past three years, Terex has generated stable free cash flow representing 65% of his EBIT. This cold cash means you can reduce your debt when you need it.
Terex’s EBIT growth suggests that Cristiano Ronaldo can handle the debt as easily as scoring a goal against an under-14 goalkeeper. The conversion from EBIT to free cash flow is also very encouraging, so this is just the beginning of the good news. Considering the range of factors above, Terex looks pretty smart about using debt. This is risky, but it also enhances shareholder returns. The balance sheet is clearly an area to focus on when analyzing liabilities. Ultimately, however, all companies may have the risk of existing off balance sheets. Identified two warning signs We use Terex (at least one is a bit jarring) and understanding them should be part of the investment process.
Check this out if you’re interested in investing in a profitable business without debt. freedom List of growth companies with net cash on their balance sheets.
Valuation is complicated, but we’re here to help make it simple.
find out if telex You may be overestimated or underestimated by checking out our comprehensive analysis including: Fair value estimates, risks and warnings, dividends, insider trading and financial health.
See Free Analysis
Do you have feedback on this article? What interests you? contact directly with us. Or send an email to our editorial team (at) Simplywallst.com.
This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price sensitive company announcements or qualitative materials. Is not …