Total Liabilities – Free Bassuk http://freebassuk.com/ Tue, 22 Nov 2022 17:18:39 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://freebassuk.com/wp-content/uploads/2021/07/icon.png Total Liabilities – Free Bassuk http://freebassuk.com/ 32 32 1 real estate stock to buy now and 1 to sell https://freebassuk.com/1-real-estate-stock-to-buy-now-and-1-to-sell/ Tue, 22 Nov 2022 17:18:39 +0000 https://freebassuk.com/1-real-estate-stock-to-buy-now-and-1-to-sell/ The real estate market has suffered a massive setback during the COVID-19 outbreak, as restrictive measures imposed by the government have led to the closure of business activities and a decline in the need for real estate services. Additionally, the aggressive pace of Fed rate hikes amid ongoing macro conflicts has led to a sharp […]]]>

The real estate market has suffered a massive setback during the COVID-19 outbreak, as restrictive measures imposed by the government have led to the closure of business activities and a decline in the need for real estate services. Additionally, the aggressive pace of Fed rate hikes amid ongoing macro conflicts has led to a sharp drop in demand for homes.

“Demand has completely dropped. Affordability was already strained by soaring house prices, when you add to that this unprecedented pace of mortgage rates, it compounds the problem,” Greg McBrideBankrate.com’s chief financial analyst, said.

However, on the positive side, the sector’s long-term growth prospects remain strong. Massive digitization and virtual capabilities such as drone videos, 3D tours, and digital home search are expected to contribute to the growth of the global real estate market at a CAGR of 5.2% from 2022 to 2030.

In this context, investors could buy real estate shares in Guild Holdings Company (GLD). However, it might be wise to avoid Opendoor Technologies Inc. (OPEN) due to its dark fundamental positioning.

Stock to buy:

Guild Holdings Company (GLD)

GHLD is a mortgage company that originates, sells and services residential mortgages in the United States. It operates approximately 260 branches with licenses in 49 states. The Company originates residential mortgages through retail channels and correspondents.

On October 7, GHLD enhanced its 3-2-1 Home, an innovative mortgage program designed to offer first-time home buyers a down payment option as low as 3%. This should allow the company to open more doors for first-time buyers and expand its customer base.

GHLD net revenue amounted to $261.22 million during the fiscal quarter ended September 30, 2022. Net income attributable to GILD was $77.37 million, while its net earnings per share were $1.26 .

Street expects GHLD’s EPS for the fiscal quarter ending June 2023 to be $0.43, indicating an 88.8% year-over-year increase. The consensus EPS estimate of $1.73 for the year ending December 2023 represents a 31.1% year-over-year increase. The company has also exceeded consensus EPS estimates in three of the past four quarters, which is impressive.

GHLD’s PER multiple of 1.75 is 84.1% lower than the industry average of 11.03. In terms of EV/Futures, the stock is trading at 1.78x, 35.1% below the industry average of 2.74x.

The stock has gained 10.1% over the past month to close its last trading session at $10.02.

GHLD’s strong fundamentals are reflected in its POWR Rankings. The stock has an overall rating of B, which equates to a buy in our proprietary rating system. POWR ratings are calculated by considering 118 separate factors, with each factor weighted to an optimal degree.

GHLD has an A rating for quality and a B for value and sentiment. It is ranked #1 out of 42 stocks in the Real estate services industry.

Beyond what is stated above, we also rated GHLD for Momentum, Growth and Stability. Get all GHLD ratings here.

Stock to avoid:

Opendoor Technologies Inc. (OPEN)

OPEN operates a digital platform for residential real estate in the United States. The company allows customers to buy and sell homes online. In addition, it offers escrow and title insurance services.

OPEN’s total operating expenses were $454 million for the second quarter ended June 30, 2022, up 46% year-over-year. Additionally, its total liabilities were $7.78 billion for the period ended June 30, 2022, compared to $7.26 billion for the period ended December 31, 2021.

OPEN’s revenue is expected to decline 36.4% year-over-year to $2.43 billion for the quarter ending December 2022. Its EPS is expected to fall 177.6% year-on-year on the other to reach $0.86 for the same period.

In terms of last 12 months price/sales, OPEN is currently trading at 0.06x, 98.7% below the industry average of 4.86x. Its trailing 12-month Price/Book multiple of 0.72 is 51.1% below the industry average of 1.47.

The stock has lost 91.4% over the past year and 88.4% since the start of the year to close the last trading session at $1.69.

OPEN’s POWR ratings are consistent with this bleak outlook. It has an overall F rating, which equates to a strong sell in our POWR rating system.

The stock also has an F rating for stability, sentiment and growth and a D for quality and momentum. It is ranked #40 in the same industry.

We also rated OPEN for value. Get all OPEN odds here.


GHLD shares were trading at $10.47 per share on Tuesday afternoon, up $0.45 (+4.49%). Year-to-date, GHLD is down -25.37%, compared to a -15.35% rise in the benchmark S&P 500 over the same period.

About the Author: Komal Bhattar

Komal’s passion for the stock market and financial analysis led her to pursue her career in investment research. Its fundamental approach to stock analysis helps investors identify the best investment opportunities. After…

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Vitalik Buterin, Coinbase, Kraken, Binance Promote Trustless CEX https://freebassuk.com/vitalik-buterin-coinbase-kraken-binance-promote-trustless-cex/ Sat, 19 Nov 2022 16:02:00 +0000 https://freebassuk.com/vitalik-buterin-coinbase-kraken-binance-promote-trustless-cex/ The collapse of FTX has severely eroded user trust in centralized crypto exchanges. Most investors have finally realized the importance of owning the keys to their digital assets and have moved record volumes of tokens from exchanges to non-custodial wallets. These events have caused a wave of urgency for centralized exchanges to provide reliable proof […]]]>
Haru Invest

The collapse of FTX has severely eroded user trust in centralized crypto exchanges. Most investors have finally realized the importance of owning the keys to their digital assets and have moved record volumes of tokens from exchanges to non-custodial wallets.

These events have caused a wave of urgency for centralized exchanges to provide reliable proof that they hold more assets than liabilities. In a November 19 blog post, Ethereum co-founder Vitalik Buterin analyzed the cryptographic methods deployed so far by exchanges to become trustless, including the limitations of these methods.

He also suggested new techniques of centralized exchanges to achieve non-trust involving the zero-knowledge non-interactive succinct-knowledge argument (ZK-SNARK) and other advanced technologies.

Binance, Coinbase, and Kraken, along with a16z general partner and former Coinbase CTO Balaji Srinivasan, contributed to the post.

Proving Solvency Using Balance Sheet Lists and Merkle Trees

In 2011, Mt. Gox was one of the first exchanges to provide proof of credit by transferring 424,242 BTC from a cold wallet to a pre-advertised Mt. Gox address. It was later revealed that the transaction may have been misleading since the transferred assets may not have been moved from a cold wallet.

In 2013, discussions began about how exchanges could prove the total size of their user deposits. The idea was that if exchanges proved their total user deposits, i.e. their total liabilities, as well as their ownership of an equivalent amount of assets, i.e. a proof of assets, then that would prove their solvency.

In other words, if exchanges could prove that they held assets equal to or greater than their user deposits, this would prove their ability to reimburse all users in the event of withdrawal requests.

The easiest way for exchanges to prove users’ total deposits was to simply publish a list of usernames along with their account balances. However, this violated users’ privacy, even though the exchanges only published a list of hashes and balances. Therefore, the Merkle tree technique, which allows verification of large datasets, was introduced.

In the Merkle tree technique, the table of user balances is inserted into a Merkle sum tree, in which each node, or leaf, is a pair of balance and hash. The lowest node layer contains individual user balances and salted username hashes. As you move up the tree, each node represents the sum of the balances of the two nodes below it and the sum of the hashes of the two nodes below it.

Merkle's sum tree
Example of a Merkle sum tree. Source: Vitalik Buterin

Although the privacy leak is limited in Merkle trees compared to public lists of names and balances, it is not completely immune, Buterin wrote. Hackers who control a large number of accounts in an exchange can potentially gain important knowledge about the users of the exchange, he added.

Buterin also noted:

“…the Merkle tree technique is as good as a liability proof system can be, if the goal is only to obtain liability proof. But its privacy properties are not are still not ideal.

You can take it a step further by using Merkle trees in smarter ways, like making each satoshi or wei a separate leaf, but eventually with more modern technology there are even better ways to do it.

The use of ZK-SNARK

Exchanges can put all user balances into a Merkle tree or KZG pledge and use a ZK-SNARK to prove that all balances are non-negative and add up to the total deposit value claimed by the exchange. Adding a hash layer to improve privacy would ensure that no exchange user can learn anything about other users’ balances.

Buterin wrote:

“In the longer term, perhaps this type of ZK proof of liability could be used not just for customer deposits on exchanges, but for lending more broadly. “

In other words, borrowers could provide ZK evidence to lenders assuring them that borrowers don’t have too many open loans.

Use of proof of assets

The simplest version of proving that the exchanges own the assets was the method deployed by Mt. Gox. Exchanges simply move their assets at a pre-agreed time or in a transaction where the data field indicates which exchange holds the assets. Exchanges could also avoid gas fees by signing an off-chain message.

However, this technique presents two major problems: the management of cold storage and the double use of guarantees. Most exchanges keep the majority of their assets in cold storage to keep them safe, which means that “doing even a single extra message to prove control of an address is a costly operation!” wrote Buterin.

To deal with the issues, Buterin noted that exchanges could use a few long-term public addresses. Exchanges could generate a few addresses, prove ownership once, and use the same addresses over and over. However, this presents challenges for maintaining privacy and security.

Alternatively, exchanges could have many addresses and prove ownership of a few randomly selected addresses. Additionally, exchanges could also use ZK proofs to ensure privacy preservation and provide the total balance of all on-chain addresses, Buterin said.

The second issue is ensuring that exchanges do not mix collateral to simulate solvency. Buterin said:

“Ideally, proof of solvency would be done in real time, with proof updating after each block. If this is not practical, the best thing to do would be to coordinate on a fixed schedule between the different exchanges, for example. prove reserves at 1400 UTC every Tuesday.

The latest issue provides proof of assets for fiat currencies. Crypto exchanges hold both digital assets and fiat currencies. According to Buterin, since fiat currency balances are not cryptographically verifiable, providing proof of assets requires relying on “fiat trust models.” For example, banks that hold fiat for exchange can attest to available balances and auditors can attest to balance sheets.

Alternatively, exchanges could create two separate entities – one that deals with asset-backed stablecoins and another that manages the bridge between fiat and crypto. Buterin noted:

“Because USDC ‘liabilities’ are just on-chain ERC20 tokens, proof of liabilities is ‘free’ and only proof of assets is required.”

The use of plasma and validia

To prevent exchanges from stealing or misusing client funds, exchanges could use Plasma. A scaling solution that became popular in Ethereum research circles in 2017-2018, Plasma divides the balance into different tokens, where each token is assigned an index and has a particular position in a block’s Merkle tree. Plasma.

However, since the advent of plasma, ZK-SNARKs have emerged as a “more viable” solution, Buterin noted. The modern version of Plasma is a validium, which is the same as ZK rollups, but the data is stored off-chain. However, Buterin warned:

In a validium, the operator a Nope means of stealing funds, although depending on the implementation details, a certain amount of user funds may be obtained blocked if the operator disappears.

The disadvantages of total decentralization

The most common problem with fully decentralized exchanges is that users can lose access to their accounts if they get hacked, forget their password, or lose their devices. Exchanges can solve this problem with email recovery and other advanced forms of account recovery using Know Your Customer details. But that would require the exchange to control the user’s funds.

Buterin wrote:

“In order to have the ability to steal funds from user accounts for good reasons, exchanges must have power that could also be used to steal funds from user accounts for bad reasons. is an unavoidable compromise.

The “ideal long-term solution,” according to Buterin, relies on self-custody with multi-signature and social clawback wallets. In the short term, however, users must choose between centralized and decentralized exchanges depending on the trade-off they are comfortable with.

Deposit exchange (e.g. Coinbase today) User funds may be lost if there is a problem on the exchange side Exchange can help recover the account
Noncustodial exchange (e.g. Uniswap today) Users can opt out even if the exchange is acting maliciously User’s funds may be lost if the user makes a mistake

Conclusions: the future of better exchanges

In the short term, investors have to choose between custodial exchanges and non-custodial exchanges or decentralized exchanges like Uniswap. However, in the future, some centralized exchanges may evolve, which will be crypto-limited so that the exchange cannot steal users’ funds, by holding balances in a validium smart contract, Buterin said.

The future could also lead to semi-custodial exchanges where users trust exchanging with fiat but not with cryptocurrencies, he added.

While the two types of swaps will continue to co-exist, the easiest way to improve the security of custody swaps is to add proof of reserves, Buterin noted. This would include a combination of proof of assets and proof of liabilities.

Going forward, Buterin hopes all exchanges will evolve to become non-custodial, “at least on the crypto side.” Centralized wallet recovery options would exist, “but this can be done at the wallet level rather than within the exchange itself,” he said.

On the fiat side, exchanges could deploy the native cash-in and cash-out processes of fiat-backed stablecoins like USDT and USDC. But “it will still take some time before we can fully get there,” Buterin warned.

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These 4 metrics indicate that Lojas Renner (BVMF:LREN3) is using debt reasonably well https://freebassuk.com/these-4-metrics-indicate-that-lojas-renner-bvmflren3-is-using-debt-reasonably-well/ Sat, 05 Nov 2022 12:35:14 +0000 https://freebassuk.com/these-4-metrics-indicate-that-lojas-renner-bvmflren3-is-using-debt-reasonably-well/ Legendary fund manager Li Lu (whom Charlie Munger once backed) once said, “The biggest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too […]]]>

Legendary fund manager Li Lu (whom Charlie Munger once backed) once said, “The biggest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. Like many other companies Lojas Renner S.A. (BVMF:LREN3) uses debt. But does this debt worry shareholders?

Why is debt risky?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. The first step when considering a company’s debt levels is to consider its cash and debt together.

See our latest analysis for Lojas Renner

What is Lojas Renner’s net debt?

The graph below, which you can click on for more details, shows that Lojas Renner had a debt of 3.44 billion reais in June 2022; about the same as the previous year. However, he has 4.72 billion reais in cash to offset this, resulting in a net cash of 1.28 billion reais.

BOVESPA:LREN3 Debt to equity November 5, 2022

A look at Lojas Renner’s responsibilities

Zooming in on the latest balance sheet data, we can see that Lojas Renner had liabilities of R$7.88 billion due within 12 months and liabilities of R$3.42 billion due beyond. In compensation for these obligations, it had cash of R$4.72 billion as well as receivables valued at R$6.66 billion maturing within 12 months. These liquid assets therefore roughly correspond to the total liabilities.

This state of affairs indicates that Lojas Renner’s balance sheet looks quite strong, since its total liabilities are roughly equal to its cash. So while it’s hard to imagine the 28.3 billion reais company fighting for cash, we still think it’s worth keeping an eye on its balance sheet. Simply put, the fact that Lojas Renner has more cash than debt is arguably a good indication that she can safely manage her debt.

We also note that Lojas Renner improved its EBIT from last year’s loss to a positive result of R$1.2 billion. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether Lojas Renner can strengthen its balance sheet over time. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Finally, while the taxman may love accounting profits, lenders only accept cash. Although Lojas Renner has net cash on its balance sheet, it’s still worth looking at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it’s building ( or erodes) this treasury. balance. Over the past year, Lojas Renner has generated free cash flow amounting to a very strong 84% of its EBIT, more than expected. This positions him well to pay off debt if desired.

Summary

While we sympathize with investors who find debt a concern, you should bear in mind that Lojas Renner has a net cash position of R$1.28 billion, as well as more liquid assets than liabilities. The icing on the cake was to convert 84% of this EBIT into free cash flow, bringing in 1.0 billion reais. So we don’t think Lojas Renner’s use of debt is risky. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks reside on the balance sheet, far from it. For example – Lojas Renner has 2 warning signs we think you should know.

In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.

Valuation is complex, but we help make it simple.

Find out if Lojas Renner is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

See the free analysis

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Crocs (NASDAQ:CROX) has a fairly healthy balance sheet https://freebassuk.com/crocs-nasdaqcrox-has-a-fairly-healthy-balance-sheet/ Sat, 29 Oct 2022 13:13:21 +0000 https://freebassuk.com/crocs-nasdaqcrox-has-a-fairly-healthy-balance-sheet/ Howard Marks said it well when he said that, rather than worrying about stock price volatility, “the possibility of permanent loss is the risk I worry about…and that every practical investor that I know is worried”. So it may be obvious that you need to take debt into account when thinking about the risk of […]]]>

Howard Marks said it well when he said that, rather than worrying about stock price volatility, “the possibility of permanent loss is the risk I worry about…and that every practical investor that I know is worried”. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. We can see that Crocs, Inc. (NASDAQ:CROX) uses debt in its business. But the more important question is: what risk does this debt create?

What risk does debt carry?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we think about a company’s use of debt, we first look at cash and debt together.

Check opportunities and risks within the American luxury industry.

What is Crocs debt?

You can click on the graph below for historical numbers, but it shows that in June 2022, Crocs had $2.77 billion in debt, up from $386.4 million, on a year. However, he also had $187.4 million in cash, so his net debt is $2.58 billion.

NasdaqGS:CROX Debt to Equity October 29, 2022

How healthy is Crocs’ balance sheet?

Zooming in on the latest balance sheet data, we can see that Crocs had liabilities of US$602.1 million due within 12 months and liabilities of US$3.49 billion due beyond. As compensation for these obligations, it had cash of US$187.4 million and receivables valued at US$442.5 million due within 12 months. Thus, its liabilities total $3.46 billion more than the combination of its cash and short-term receivables.

This is a mountain of leverage compared to its market capitalization of US$4.43 billion. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet quickly.

In order to assess a company’s debt relative to its earnings, we calculate its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and its earnings before interest and taxes (EBIT) divided by its expenses. interest (its interest coverage). Thus, we consider debt to earnings with and without amortization and depreciation expense.

Crocs’ net debt is 3.0 times its EBITDA, which is high but still reasonable leverage. But its EBIT was around 12.3 times its interest expense, implying that the company isn’t really paying a high cost to maintain that level of leverage. Even if the low cost turns out to be unsustainable, that’s a good sign. Above all, Crocs has increased its EBIT by 68% in the last twelve months, and this growth will make it easier to manage its debt. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Crocs can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

But our last consideration is also important, because a company cannot pay debt with paper profits; he needs cash. So the logical step is to look at what proportion of that EBIT is actual free cash flow. Over the past three years, Crocs has had free cash flow of 57% of its EBIT, which is about normal, given that free cash flow excludes interest and taxes. This free cash flow puts the company in a good position to repay its debt, should it arise.

Our point of view

Crocs’ ability to cover its interest expense with its EBIT and its rate of EBIT growth has given us comfort in its ability to manage its debt. On the other hand, its level of total liabilities makes us a little less comfortable about its indebtedness. When you consider all of the above, it seems to us that Crocs manages its debt pretty well. But be warned: we believe debt levels are high enough to warrant continued monitoring. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example, Crocs has 4 warning signs (and 1 which is potentially serious) that we think you should know about.

Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.

Valuation is complex, but we help make it simple.

Find out if Crocodile is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

See the free analysis

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Veolia Environnement appears undervalued (OTCMKTS: VEOEF) https://freebassuk.com/veolia-environnement-appears-undervalued-otcmkts-veoef/ Sun, 23 Oct 2022 16:36:00 +0000 https://freebassuk.com/veolia-environnement-appears-undervalued-otcmkts-veoef/ Editor’s note: Seeking Alpha is proud to welcome Bersit Research as a new contributor. It’s easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to SA Premium. Click on Here for more info “ movie still Veolia Environnement SA (OTCPK: VEOEY) recently confirmed […]]]>

Editor’s note: Seeking Alpha is proud to welcome Bersit Research as a new contributor. It’s easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to SA Premium. Click on Here for more info “

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Veolia Environnement SA (OTCPK: VEOEY) recently confirmed some of the synergies expected from its transaction with Suez and signed an agreement with a major financial group. The forecast for 2022 has also been beneficial and management has already noted significant improvements – mainly in Eastern Europe. In my base case, which includes conservative free cash flow generation for seven years and maybe a few more M&A deals, I got a fair valuation of $34 per share. I also observed major risks related to climate change and new regulatory frameworks. However, I don’t think the downside risk is worrying enough and I’m giving Veolia a buy rating.

Business background

The Veolia group is an international player that deploys revolutionary solutions for water, waste and energy management. After carefully reading the last presentation of the first half of 2022, I decided to conduct research on the financial figures of the company. There are a few good reasons to do so.

Source: H1 2022 presentation

Source: H1 2022 presentation

Firstly, Veolia is benefiting from high energy prices and good performance from energy cogeneration. High prices for recycled materials also help in this regard. If we include the fact that the first synergies of the merger with Suez (OTCPK:SZSAY) are manifesting, Veolia becomes even more interesting:

Veolia expects the integration of Suez activities to generate synergies of 500 million euros over the next four years.

It should also be noted that Veolia’s water business model is present in many jurisdictions, including France, Spain, many parts of Europe and Chile. The business model is well diversified, so the volatility in revenue growth, in my view, might not be that significant. If one region is not performing well, Veolia could perform well in other countries.

Source: H1 2022 presentation

Source: H1 2022 presentation

I believe that management is announcing new projects that can improve revenue growth over the next decade. Among several announced projects is the construction of a biomass cogeneration plant for Norske Skog in France, which would represent an order book of nearly 15 million euros.

In addition, Veolia recently noted a partnership with Total (TTE) to build a solar photovoltaic system for a desalination plant in Oman. We would be talking about 300,000 tonnes of CO2 avoided emissions.

Source: H1 2022 presentation

Source: H1 2022 presentation

Finally, I think many market players will probably appreciate the agreement signed with Macquarie (OTCPK:MCQEF) to sell Suez’s waste business in the UK. The operation would represent nearly 2.4 billion euros, which Veolia could use to finance other projects more ambitious than that of the United Kingdom:

Veolia announces the signing of a unilateral sale agreement by which Macquarie Asset Management irrevocably undertakes to acquire 100% of the capital of Suez Recycling and Recovery UK Group, bringing together Suez’s waste activities in the United Kingdom. Proceeds from the sale will amount to approximately 2.4 billion euros.

Advice from Veolia

Veolia’s guidance is rather positive. The company expects net profit growth of around 20% in 2020, close to a net profit of 1.1 billion euros. Management also highlighted EBITDA margin efficiencies of over €350 million and significant organic growth close to 4%-6%. In my view, if dividends continue to grow as promised and net debt holds close to 3x, I would say there would be demand for the stock.

Source: H1 2022 presentation

Source: H1 2022 presentation

Financial analysts have reported favorable estimates for the years 2023 and 2024. For 2024, they forecast net sales of 41 billion euros and sales growth of 3.95% with an EBITDA margin of 16.43%. Net income in 2024 would be close to 1.4 billion euros and free cash flow would reach 1.3 billion euros with a free cash flow margin of 3.20%.

Source: MarketScreener.com

Source: MarketScreener.com

Finally, 2024 EV/EBITDA is expected to remain at 4.71x, compared to 4.88x in 2024, and the number of shares would remain at nearly 687 million in 2022. I have used some of these numbers in my financial models, I therefore invite readers to watch them.

Source: MarketScreener.com

Source: MarketScreener.com

Assessment: debt does not seem significant

In June 2022, Veolia had intangible assets of €21 billion, property, plant and equipment of €15 billion and cash and cash equivalents of €7 billion. Current assets amount to 19 billion euros and total assets to 72 billion euros. I think that Veolia has both cash and significant tangible fixed assets to finance future M&A operations.

Financial debt amounts to nearly 33 billion euros and other current liabilities to 18 billion euros. In my opinion, the future free cash flow and the stability of the company’s EBITDA margin seem sufficient to justify the total amount of debt. I would not expect shareholders to be afraid of the total amount of debt.

Source: H1 2022 presentation

Source: H1 2022 presentation

Beneficial results could lead to a valuation of $34 per share

In my base case scenario, I would expect more benefits from the company’s price escalation mechanisms in the majority of contracts, allowing it to offset cost inflation.

I believe in the strategic program Impact 2023, and also assume that the merger with Suez will be successful. I think Veolia will benefit from the synergies of the transaction. In this regard, I must highlight management’s expectations, which include an EPS increase of almost 40% in 2024. From the 2021 annual report, we can observe the following:

This growth, in addition to the expected synergies, will enable our current net income to grow by more than 20% in 2022 and improve our earnings per share by around 40% in 2024. The creation of the undisputed world champion of ecological transformation is underway and on track.

Successful mergers and acquisitions will also provide significant confidence to complete other transactions in the future. With the cash to be received from Macquarie, I would expect further transactions to improve revenue generation.

As far as organic growth is concerned, I think the company’s business model will continue to benefit in Eastern Europe. Favorable climate impact, increased tariffs and the integration of new assets in different regions will likely lead to revenue growth and possibly a higher EBITDA margin in the coming years. Let us note some of the annual results obtained in the past in Central and Eastern Europe (see link above):

This growth is mainly attributable to Central and Eastern Europe (including Germany), with revenue of €6,260 million, up +19.6%, mainly from the Energy business, in +37% increase, due to the combination of a favorable weather effect, the rise in heat and electricity prices and the integration of new assets in Prague and Budapest. Water revenue was up +3%, including volumes +0.3% and more sustained price increases. Germany grew by +9.1% thanks to the recovery in volumes in C&I Waste, the rise in energy and recycled materials prices, a favorable climate impact and higher tariffs. Revenue in Northern Europe amounted to €3,276 million, up +7.6% vs 2020 and +2% vs 2019.

For 2030, I have estimated a net turnover of 40 billion euros, a sales growth of 5%, an EBITDA of 4 billion euros and an EBITDA margin of 10%. Considering a WACC of 5.39%, in addition to a free cash flow of 2.832 billion euros, with a margin in FCF of 7%, I obtained a net present value of FCF of 16 billion euros. If we also use an optimistic EV/EBITDA of 11x, the exit value would be €44 billion and the NPV would remain at €29 billion. Finally, with a share count of 687 million, I got a fair price of $34 per share.

author's work

author’s work

The worst case scenario would involve a valuation of $15 per share

Regarding the potential risks that could impede the company’s revenue growth, there are risks associated with the impairment of intangible assets. In addition, market developments or new regulatory frameworks could also play a role, reducing the company’s margins and leading to lower revenue growth. These risks have been highlighted by management as high.

Source: H1 2022 presentation

Source: H1 2022 presentation

In this scenario, I also assumed that the political risks associated with the war in Ukraine, economic recessions and climate change could also hurt the company’s revenue growth.

Source: H1 2022 presentation

Source: H1 2022 presentation

Finally, I think that the deterioration of exchange rates could also be detrimental to shareholders. Veolia does a lot of business in Europe. If the EUR/USD swing doesn’t work out, investors in the US could lose money. Note that, in the last annual report (link above), the company reported some small losses in this regard:

Currency fluctuations are almost neutral on sales, at -€4 million.

In this scenario, in 2030, I forecast net sales of €32 billion, with sales growth of 15%, EBITDA of €3.2 billion and an EBITDA margin of 10% . I also estimated an FCF of 1.6 billion euros and an FCF margin of 5%. The net present value of the FCF would be close to €11 billion with a WACC discount of 6.55%.

I also got an exit value of €35 billion, with an exit NPV of €21.5 billion, an enterprise value of €32 billion and equity close to €10 billion. euros. Finally, the implied price would be close to $15 per share.

author's work

author’s work

author's work

author’s work

Conclusion

Veolia recently signed numerous transactions likely to provide synergies or cash flow for the sale of divisions. The deal with Suez is a clear example, but the deal with Macquarie could also improve the company’s balance sheet. In addition, the guidance given by Veolia for 2022 and the expectations of market analysts are also rather positive. In my base case scenario which includes reasonable free cash flow generation and improvement in Eastern Europe, the fair price turned out to be close to $34 per share. Yes, there are risks related to impairment of intangible assets and climate change. However, I think the current market price does not represent the true picture for Veolia.

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DICK’S Sporting Goods (NYSE:DKS) seems to be using debt quite wisely https://freebassuk.com/dicks-sporting-goods-nysedks-seems-to-be-using-debt-quite-wisely/ Sat, 15 Oct 2022 13:04:23 +0000 https://freebassuk.com/dicks-sporting-goods-nysedks-seems-to-be-using-debt-quite-wisely/ Warren Buffett said: “Volatility is far from synonymous with risk. When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. Like many other companies Dick’s Sporting Goods, Inc. (NYSE:DKS) uses debt. But does this debt worry shareholders? When is debt dangerous? Debt […]]]>

Warren Buffett said: “Volatility is far from synonymous with risk. When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. Like many other companies Dick’s Sporting Goods, Inc. (NYSE:DKS) uses debt. But does this debt worry shareholders?

When is debt dangerous?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case, a company can go bankrupt if it cannot pay its creditors. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. When we look at debt levels, we first consider cash and debt levels, together.

How much debt does DICK’S Sporting Goods have?

The image below, which you can click on for more details, shows that as of July 2022, DICK’S Sporting Goods had $1.85 billion in debt, up from $433.5 million in one year. But on the other hand, he also has $1.90 billion in cash, resulting in a net cash position of $45.2 million.

NYSE: DKS Debt to Equity History October 15, 2022

A Look at DICK’s Sporting Goods Responsibilities

We can see from the most recent balance sheet that DICK’S Sporting Goods had liabilities of US$2.78 billion due within one year, and liabilities of US$4.11 billion due beyond . As compensation for these obligations, it had cash of US$1.90 billion as well as receivables valued at US$84.4 million due within 12 months. It therefore has liabilities totaling $4.91 billion more than its cash and short-term receivables, combined.

DICK’S Sporting Goods has a market capitalization of $8.71 billion, so it could very likely raise funds to improve its balance sheet, should the need arise. But it is clear that it is essential to examine closely whether it can manage its debt without dilution. Despite its notable liabilities, DICK’S Sporting Goods has a net cash position, so it’s fair to say that it doesn’t have a lot of debt!

But the flip side is that DICK’S Sporting Goods has seen its EBIT drop 3.6% over the past year. If earnings continue to decline at this rate, the company could find it increasingly difficult to manage its debt. The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything, that will determine DICK’S Sporting Goods’ ability to maintain a healthy balance sheet in the future. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

Finally, while the taxman may love accounting profits, lenders only accept cash. DICK’S Sporting Goods may have net cash on the balance sheet, but it’s always interesting to see how well the business converts its earnings before interest and tax (EBIT) into free cash flow, as this will influence both its needs and its ability to manage debt. Over the past three years, DICK’S Sporting Goods has produced strong free cash flow equivalent to 72% of its EBIT, which is what we expected. This free cash flow puts the company in a good position to repay its debt, should it arise.

Summary

Although DICK’S Sporting Goods’ balance sheet is not particularly strong, due to total liabilities, it is clearly positive to see that it has a net cash position of $45.2 million. And it impressed us with free cash flow of $380 million, or 72% of its EBIT. We are therefore not concerned about the use of DICK’S Sporting Goods debt. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist outside of the balance sheet. We have identified 3 warning signs with DICK’S Sporting Goods (at least 1 which is concerning), and understanding them should be part of your investment process.

If you are interested in investing in businesses that can generate profits without the burden of debt, then check out this free list of growing companies that have net cash on the balance sheet.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Prophase Labs: Solid foundations and growth potential (NASDAQ: PRPH) https://freebassuk.com/prophase-labs-solid-foundations-and-growth-potential-nasdaq-prph/ Thu, 13 Oct 2022 16:42:00 +0000 https://freebassuk.com/prophase-labs-solid-foundations-and-growth-potential-nasdaq-prph/ LL28 ProPhase Labs, Inc. (NASDAQ:PRPH) is a small-cap biotech stock with a market capitalization of just $174.74 million. Over the past year, the stock price has increased by 114.03%. The company has exceeded earnings expectations for the past three consecutive quarters. One-year stock price trend (seekingalpha.com) PRPH is a long-standing biotechnology company; which underwent a […]]]>

LL28

ProPhase Labs, Inc. (NASDAQ:PRPH) is a small-cap biotech stock with a market capitalization of just $174.74 million. Over the past year, the stock price has increased by 114.03%. The company has exceeded earnings expectations for the past three consecutive quarters.

chart

One-year stock price trend (seekingalpha.com)

PRPH is a long-standing biotechnology company; which underwent a complete corporate strategic overhaul at the end of 2009. Over the past three years, compound annual revenue has increased by 132.07%. The company has outperformed the market to date and the stock price is currently well below the one-year target of $15. I believe there is much more upside potential for this cheap biotech company with strong fundamentals. It has increased its performance in terms of turnover and earnings year on year, increased its working capital, paid special dividends and made strategic acquisitions for continued growth opportunities. Given that this stock is cheap, undervalued, and performing well, I think investors may want to take a bullish stance on this company.

Introduction

PRPH was established in 1989 and was originally called The Quigley Corp., after its founder, former CEO and Chairman Guy J. Quigley. It went public in 1991 and was best known for its cold remedy, the over-the-counter product Cold-Eeze, which was created in 1992 and has since been sold to Mylan Pharma. In 2001, Quigley Pharma Inc. was formed to focus on R&D for other drug development programs. After a tough proxy battle in 2009, the founder stepped down and Ted Karkus has been CEO ever since. After 2009, PRPH underwent a complete strategic overhaul that propelled this biotechnology company into the growth phase that we continue to see today. The change included a completely new corporate identity, from a focus of research to a new logo, new packaging and a complete change in the board of directors at the time.

Until the end of 2014, PRPH had significantly high litigation costs relating to litigation related to the founder and his family and the restructuring of the firm and its objectives. Today, PRPH is involved in various activities focused on genomics, biotechnology and diagnostics, including R&D, distribution, sales and marketing of consumer health products and dietary supplements. It also supported COVID-19 testing and other diagnostic processes, including cancer research.

power point

The Business Divisions of PRPH (Investor Presentation 2022)

Increasing shareholder value is a critical business objective. To give you a small indication of the positive impact of change on growth, long-term shareholders have seen returns of 782.64% over the past five years.

power point

Company timeline since proxy battle (2022 investor presentation)

Finances and evaluation

PRPH is in the growth phase of its business model, but it is already showing profitability. The company has increased its numbers year over year, increased its working capital, paid dividends and made strategic acquisitions to increase its market share. In the chart below, we can see the incremental revenue growth over the past few years. The second quarter of 2022 recorded net revenue of $29.1 million, an increase of 218% year-on-year.

chart

Annual revenue results (seekingalpha.com)

In the graph below, we can see the normalized net income by quarter. Second and third quarter results are generally weaker due to the seasonality of over-the-counter products sold more frequently outside of the summer months. Net income for the second quarter of 2022 hit a record $7.4 million, a 633% year-over-year increase.

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Normalized net income – Quarterly (seekingalpha.com)

The company has a strong net working capital of $53.53 million, cash and cash equivalents and marketable securities of $27.5 million. Its working capital is sufficient for new growth opportunities in addition to its $6 million stock buyback program. Additionally, the company also paid cash dividends of $0.30 per share last quarter. In 2021, it completed its largest acquisition, Nebula Genomics, for $15 million.

table

Special history of dividends (Investor presentation 2022)

If we look at PRPH against the average performance of the pharmaceutical and healthcare industry, looking at Seeking Alpha’s Quant Rating, we can see that the company looks very promising and undervalued relative to its financials. It has a price/earnings ratio of 7.81. The industry average is more than double.

table

Quantitative assessment (seekingalpha.com)

Risks

The business has a seasonal rate of return. Historically, the third quarter is the company’s weakest quarter in terms of performance. Products and even COVID-19 testing are seasonal depending on the weather, and fewer people get cold in the summer months. Additionally, COVID-19 testing depends on school regulations and procedures regarding the number of people who may be tested. It is said that this could increase with fewer people wearing masks in public spaces.

In the medical field, companies can benefit from certain funds and incentives. However, these can also be put on hold or terminated, which has an immediate impact on business performance. HRSA funded 70% of PRPH’s business to give uninsured clients the opportunity to get tested. The government did not have sufficient funds to continue the program, which immediately impacted HPRP’s revenue potential.

In addition, the company carries a certain amount of debt which could become a problem if it cannot raise enough capital to pay off its obligations quickly. PRPH has $16.7 million in debt due in the next twelve months and an additional $13.1 million in the next commitment period. He has more liquid assets than his total liabilities, but you have to be careful.

Final Thoughts

One of the critical issues with this stock is that it doesn’t hold much appeal to investors. It has rewarded its long-term investors with impressive returns. After reviewing ProPhase’s financials and valuation against its industry, the company is undervalued and there appears to be remarkable upside potential going forward, especially with respect to the latest acquisition. The company is diversifying its testing laboratories, which will further contribute to its research and development programs in the future. For this reason, I think investors may want to take a bullish stance on this cheap and small stock.

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Is the energy transfer (ET) stock undervalued right now? – October 11, 2022 https://freebassuk.com/is-the-energy-transfer-et-stock-undervalued-right-now-october-11-2022/ Tue, 11 Oct 2022 12:49:49 +0000 https://freebassuk.com/is-the-energy-transfer-et-stock-undervalued-right-now-october-11-2022/ While Zacks’ proven rankings emphasize earnings estimates and revisions to estimates to find strong stocks, we also know that investors tend to develop their own individual strategies. With that in mind, we always look at value, growth and momentum trends to uncover great companies. Looking at the history of these trends, perhaps none is more […]]]>

While Zacks’ proven rankings emphasize earnings estimates and revisions to estimates to find strong stocks, we also know that investors tend to develop their own individual strategies. With that in mind, we always look at value, growth and momentum trends to uncover great companies.

Looking at the history of these trends, perhaps none is more popular than value investing. This strategy simply aims to identify companies that are undervalued by the broader market. Value investors use proven metrics and fundamental analysis to find companies they believe are undervalued at their current stock price level.

In addition to the Zacks Ranking, investors can also consult our innovative style score system to find stocks with specific characteristics. For example, value investors will want to focus on the “Value” category. Stocks with high Zacks ranks and “A” ratings for value will be among the highest quality value stocks in the market today.

A stock to watch is Energy transfer (HEY Free report) . ET currently sports a Zacks rank of No. 2 (buy), as well as a value rating of A. The stock has a forward P/E ratio of 8.50. This compares to its industry average Forward P/E of 9.96. Over the past 12 months, ET’s Forward P/E has been as high as 11.51 and as low as 4.74, with a median of 8.52.

Note also that ET has a P/B ratio of 1.03. P/B is a method of comparing the market value of a stock to its book value, which is defined as total assets minus total liabilities. This company’s current P/B looks solid compared to its industry average P/B of 1.70. Over the past year, ET’s P/B has been as high as 1.11 and as low as 0.74, with a median of 0.96.

Value investors also value the P/S ratio, which is calculated by simply dividing a stock’s price by the company’s sales. Some people prefer this measure because sales are more difficult to manipulate on an income statement. This means it could be a truer performance indicator. ET has a P/S ratio of 0.43. This compares to its industry average P/S of 1.04.

Finally, investors will want to recognize that ET has a P/CF ratio of 4.62. This measure takes into account a company’s operating cash flow and can be used to find undervalued stocks based on their strong cash flow outlook. ET’s P/CF compares to its industry average P/CF of 7.32. Over the past 12 months, ET’s P/CF has been as high as 5.49 and as low as 2.53, with a median of 3.95.

If you’re looking for another solid value Oil & Gas – Production Pipeline – MLB stock, take a look at American Plains Pipeline (PAA Free report) . PAA is a #1 (strong buy) stock with a value score of A.

Plains All American Pipeline also has a P/B ratio of 0.75; this compares to its industry’s price-to-book ratio of 1.70. Over the past 52 weeks, the P/B of the PAA has been as high as 1.15, as low as 0.63, with a median of 0.75.

These numbers are just a few of the value indicators that investors tend to look at, but they help show that Energy Transfer and Plains All American Pipeline are likely undervalued right now. Given that, along with the strength of its earnings outlook, ET and PAA appear to be a high value stock at the moment.

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AltaGas (TSE:ALA) seems to use a lot of debt https://freebassuk.com/altagas-tseala-seems-to-use-a-lot-of-debt/ Sat, 08 Oct 2022 14:59:54 +0000 https://freebassuk.com/altagas-tseala-seems-to-use-a-lot-of-debt/ Berkshire Hathaway’s Charlie Munger-backed outside fund manager Li Lu is quick to say, “The biggest risk in investing isn’t price volatility, but whether you’re going to suffer a permanent loss of capital “. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when […]]]>

Berkshire Hathaway’s Charlie Munger-backed outside fund manager Li Lu is quick to say, “The biggest risk in investing isn’t price volatility, but whether you’re going to suffer a permanent loss of capital “. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. Above all, AltaGas Ltd. (TSE:ALA) is in debt. But does this debt worry shareholders?

When is debt dangerous?

Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. The first thing to do when considering how much debt a business has is to look at its cash and debt together.

Check out our latest analysis for AltaGas

What is AltaGas’ debt?

As you can see below, AltaGas had C$7.88 billion in debt as of June 2022, which is about the same as the previous year. You can click on the graph for more details. However, it also had C$229.0 million in cash, so its net debt is C$7.65 billion.

TSX: ALA Debt to Equity History October 8, 2022

A Look at AltaGas Liabilities

Zooming in on the latest balance sheet data, we can see that AltaGas had liabilities of C$3.70 billion due within 12 months and liabilities of C$10.8 billion due beyond. On the other hand, it had liquid assets of C$229.0 million and C$1.71 billion of receivables due within one year. Thus, its liabilities total C$12.5 billion more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the C$7.30 billion business itself, like a child struggling under the weight of a huge backpack full of books, his gym gear and a trumpet. So we definitely think shareholders need to watch this one closely. Ultimately, AltaGas would likely need a significant recapitalization if its creditors demanded repayment.

We measure a company’s leverage against its earning power by looking at its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and calculating how easily its earnings before interest and taxes (EBIT ) covers its interest charge (interest coverage). Thus, we consider debt to earnings with and without amortization and depreciation expense.

With a net debt to EBITDA ratio of 5.2, it’s fair to say that AltaGas has significant debt. However, its interest coverage of 3.7 is reasonably strong, which is a good sign. Fortunately, AltaGas has grown its EBIT by 8.0% over the past year, slowly reducing its debt relative to its earnings. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether AltaGas can strengthen its balance sheet over time. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Finally, a business needs free cash flow to pay off its debts; book profits are not enough. We therefore always check how much of this EBIT is converted into free cash flow. Over the past three years, AltaGas has had negative free cash flow, overall. Debt is generally more expensive and almost always riskier in the hands of a company with negative free cash flow. Shareholders should hope for an improvement.

Our point of view

At first glance, AltaGas’s net debt to EBITDA ratio left us wondering about the stock, and its level of total liabilities was no more appealing than the single empty restaurant on the busiest night of the year. But on the bright side, its EBIT growth rate is a good sign and makes us more optimistic. It’s also worth noting that companies in the gas utility industry like AltaGas routinely use debt without issue. We are very clear that we consider AltaGas to be quite risky, given the health of its balance sheet. For this reason, we are quite cautious about the stock and believe shareholders should keep a close eye on its liquidity. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. These risks can be difficult to spot. Every business has them, and we’ve spotted 3 warning signs for AltaGas (of which 1 is worrying!) that you should know about.

If, after all that, you’re more interested in a fast-growing company with a strong balance sheet, check out our list of cash-flowing growth stocks without further ado.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Valuation is complex, but we help make it simple.

Find out if AltaGas is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

See the free analysis

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Does Mills Locação Serviços e Logística (BVMF:MILS3) have a healthy balance sheet? https://freebassuk.com/does-mills-locacao-servicos-e-logistica-bvmfmils3-have-a-healthy-balance-sheet/ Thu, 06 Oct 2022 09:02:30 +0000 https://freebassuk.com/does-mills-locacao-servicos-e-logistica-bvmfmils3-have-a-healthy-balance-sheet/ Berkshire Hathaway’s Charlie Munger-backed outside fund manager Li Lu is quick to say, “The biggest risk in investing isn’t price volatility, but whether you’re going to suffer a permanent loss of capital “. When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to […]]]>

Berkshire Hathaway’s Charlie Munger-backed outside fund manager Li Lu is quick to say, “The biggest risk in investing isn’t price volatility, but whether you’re going to suffer a permanent loss of capital “. When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. Like many other companies Mills Locação, Serviços e Logística SA (BVMF:MILS3) uses debt. But does this debt worry shareholders?

When is debt a problem?

Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we look at debt levels, we first consider cash and debt levels, together.

Check out our latest review for Mills Locação Serviços e Logística

What is the debt of Mills Locação Serviços e Logística?

As you can see below, at the end of June 2022, Mills Locação Serviços e Logística had a debt of R$424.9 million, compared to R$183.7 million a year ago. Click on the image for more details. But on the other hand, he also has 450.9 million reais in cash, resulting in a net cash position of 26.1 million reais.

BOVESPA:MILS3 Debt to equity October 6, 2022

A look at the responsibilities of Mills Locação Serviços e Logística

Zooming in on the latest balance sheet data, we can see that Mills Locação Serviços e Logística had liabilities of R$213.3 million due within 12 months and liabilities of R$461.1 million due beyond. In return, he had 450.9 million reais in cash and 213.2 million reais in debts which had to be paid within 12 months. These liquid assets therefore roughly correspond to the total liabilities.

Given the size of Mills Locação Serviços e Logística, it appears that its cash is well balanced with its total liabilities. It is therefore very unlikely that the 2.89 billion reais company will run out of cash, but it is still worth keeping an eye on the balance sheet. While it has liabilities of note, Mills Locação Serviços e Logística also has more cash than debt, so we’re pretty confident it can manage its debt safely.

Even better, Mills Locação Serviços e Logística increased its EBIT by 159% last year, which is an impressive improvement. This boost will make it even easier to pay off debt in the future. When analyzing debt levels, the balance sheet is the obvious starting point. But it is the profits of Mills Locação Serviços e Logística that will influence the balance sheet in the future. So, if you want to know more about its earnings, it may be worth checking out this graph of its long-term trend.

Finally, while the taxman may love accounting profits, lenders only accept cash. Mills Locação Serviços e Logística may have net cash on the balance sheet, but it is always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need of, and its ability to manage debt. Over the past two years, Mills Locação Serviços e Logística has produced strong free cash flow equivalent to 69% of its EBIT, which is what we expected. This free cash flow puts the company in a good position to repay its debt, should it arise.

Summary

We can understand that investors are worried about the liabilities of Mills Locação Serviços e Logística, but we can take comfort in the fact that it has a net cash position of 26.1 million reais. And we liked the look of EBIT growth of 159% YoY last year. So is Mills Locação Serviços e Logística’s debt a risk? This does not seem to us to be the case. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks reside on the balance sheet, far from it. Know that Mills Locação Serviços e Logística displays 1 warning sign in our investment analysis you should know…

In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Valuation is complex, but we help make it simple.

Find out if Mills Locação Serviços e Logística is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

See the free analysis

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