These 4 Measures Indicate That Green Landscaping Group (STO:GREEN) Is Using Debt Reasonably Well
Outside fund manager, assisted by Charlie Munger of Berkshire Hathaway, Li Lu, doesn’t care if he says, “The greatest risk to investment is not price volatility, it is whether you experience permanent capital loss.” So it seems that the smart money knows that debt – which is usually associated with bankruptcies – is a very important factor in assessing how risky a business is. As with many other companies Green Landscaping Group AB (publ) (STO: GREEN) goes into debt. But is this debt a concern of shareholders?
When is debt a problem?
Debt supports a company until the company struggles to pay it off with either new capital or free cash flow. Ultimately, if the company fails to meet its legal debt repayment obligations, shareholders cannot get away with anything. However, a more common (but still costly) occurrence is when a company needs to issue stocks at cheap prices and permanently dilute shareholders in order to prop up its balance sheet. However, the most common situation is that a company is managing its debt reasonably well – and for its own benefit. When we examine leverage, we first look at both cash and leverage together.
Check out our latest analysis for the Green Landscaping Group
How much debt does the Green Landscaping Group have?
You can click the graph below to view the historical numbers. However, it shows that in September 2020 the Green Landscaping Group had debts of 6005.9 million kr over one year, which is an increase of 491.2 million kr. However, since it has a cash reserve of 79.7 million kroner, its net debt is lower at around 526.2 million kroner.
OM: GREEN Debt to Equity History February 12, 2021
How strong is the Green Landscaping Group’s balance sheet?
The latest balance sheet data show that the Green Landscaping Group had liabilities of 575.3 million kr within one year and liabilities of 746.5 million kr after that became due. This was offset by cash in the amount of 79.7 million kroner and accounts receivable in the amount of 479.3 million kroner due within 12 months. The liabilities are therefore kr 762.8 million more than the combination of cash and short-term receivables.
This deficit is not that bad because the Green Landscaping Group is valued at 2.18 billion kr and therefore could probably raise enough capital to prop up its balance sheet if needed. But we definitely want to keep our eyes peeled for signs that the debt is too risky.
To estimate a company’s debt in relation to its earnings, we calculate net debt divided by earnings before interest, taxes, depreciation and amortization (EBITDA) and earnings before interest and taxes (EBIT) divided by interest expenses (EBITDA). its interest coverage). The advantage of this approach is that we take into account both the absolute debt volume (with net debt to EBITDA) and the actual interest expenses associated with this debt (with its interest coverage ratio).
The Green Landscaping Group has a debt to EBITDA ratio of 4.1 and its EBIT covered its interest expense 3.9 times. Taken together, this means that while we don’t want debt to go up, we believe it can handle its current leverage. The silver lining is that the Green Landscaping Group increased its EBIT by 105% last year, which, like the idealism of young people, nourishes. If this earnings trend continues, the debt burden will be much easier to manage in the future. When analyzing debt, the obvious starting point is the balance sheet. Above all, future profits determine the ability of the Green Landscaping Group to keep a healthy balance sheet in the future. So if your focus is on the future, this is what you can check out free Report with earnings forecast by analysts.
While the tax man may like book profits, lenders only accept cash. So the logical step is to look at the portion of this EBIT that corresponds to the actual free cash flow. Over the past three years, the Green Landscaping Group recorded a free cash flow of 67% of its EBIT, which is roughly the normal cash flow excluding interest and taxes. That cold cash means it can reduce its debt if it wants to.
The Green Landscaping Group’s EBIT growth rate suggests it can manage its debt as easily as Cristiano Ronaldo could score against a goalkeeper under the age of 14. We have to admit, however, that net debt versus EBITDA has the opposite effect. When we look at all of the above factors together, what we notice is that Green Landscaping Group can handle their debts quite comfortably. While this leverage can improve return on equity, it carries a higher risk. So it’s worth keeping an eye on them. There is no doubt that we learn the most about debt from the balance sheet. However, not all of the investment risk is on the balance sheet – far from it. For example, Green Landscaping Group 3 warning signs (and 1 which may be severe) We think you should know about this.
If you are looking to invest in companies that can make profits without the burden of debt, this is the place to check out free List of growing companies that have net cash on their balance sheets.
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