Porvier (LON: PRV) has a solid balance sheet

Legendary fund manager Li Lu (who was backed by Charlie Munger) once said, “The biggest investment risk is not price volatility, but whether you will suffer a permanent loss of capital.” It’s only natural to look at a company’s balance sheet when examining how risky it is, since debt is often involved when a company goes down. As with many other companies Porphyre plc (LON: PRV) Takes advantage of debt. But should shareholders worry about his use of debt?

Why does debt bring risks?

Debt is a tool to help businesses grow, but if the company is unable to repay the loans to the lenders, it is at their mercy. An integral part of capitalism is the process of “creative destruction” in which failed companies are mercilessly liquidated by bankers. However, a more common (but still painful) scenario is that it has to raise new capital at a low rate, thereby permanently weakening the shareholders. Of course, debt can be an important tool in business, especially capital-heavy businesses. The first step when looking at a company’s debt levels is to consider both liquidity and debt.

Check out our latest analysis for Porvair

What is porphyr’s debt?

The image below, which you can click on for more details, shows that Porvier was in debt of £5.22m at the end of November 2021, which is down from £10.7m in the UK over the course of a year. But she also has £15.4m in cash to make up for that, which means she has a net cash of £10.2m.

Analyze the history of debt and equity

A look at Porphyr’s commitments

We can see from the most recent balance sheet that Porphyr has liabilities of £29.2 million due within a year, and liabilities of £31.5 million due after that. Instead, she had £15.4 million in cash and £20.4 million in receivables that were due within 12 months. Its liabilities therefore outweigh the sum of cash and (short-term) receivables from the UK of £24.9 million.

With Porphyr’s publicly traded shares worth a total of £257.3m in the UK, it seems unlikely that this level of liability would pose a significant threat. However, we think it is worth keeping an eye on the strength of its balance sheet, as it may change over time. Despite her noteworthy commitments, Porvier boasts a net worth, so it’s fair to say that she doesn’t have a heavy debt burden!

Also positive is that Porvier has increased its EBIT by 27% in the past year, and this should make it easier to pay off debt in the future. When analyzing debt levels, the balance sheet is the obvious place to start. But in the end, the company’s future profitability will decide whether Porvier can boost its balance sheet over time. So if you focus on the future, you can check it out Free Report showing analyst earnings forecasts.

But our last consideration is also important, because a company cannot pay off debts with paper dividends; He needs cold hard cash. Porvier may have net cash on the balance sheet, but it’s still interesting to look at how well a company can convert its earnings before interest and taxes (EBIT) into free cash flow, because that will affect both its need to, and its ability to manage debt. Over the past three years, Porphyr has generated strong free cash flow equivalent to 67% of its EBIT, about what we’ve been expecting. This free cash flow puts the company in a good position to pay off debt, when required.

A summary of the above

We can understand if investors are concerned about Porphyr’s commitments, but we can rest assured of the fact that she has a net cash of £10.2 million. We liked the look of EBITDA growth of 27% in the last year. So, is Porfier’s debt a risk? It does not seem so to us. Obviously, the balance sheet is the area to focus on when analyzing debt. But in the end, every company can have off-balance sheet risks. For example – I have a porphyry 1 warning sign We think you should be aware.

If you are interested in investing in a business that can generate profits without the burden of debt, check it out Free List of growing companies that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide comments based only on historical data and analyst expectations 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, nor does it take into account your objectives or financial situation. We aim to provide you with focused, long-term analysis driven by essential data. Note that our analysis may not include the company’s most recent price-sensitive ads or quality materials. Wall Street simply has no position in any of the stocks mentioned.

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