Splitit Payments (ASX: SPT) uses debt securely
David Iben put it well when he said: âVolatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. Above all, Splitit Payments Ltd. (ASX: SPT) carries a debt. But the most important question is: what risk does this debt create?
What risk does debt entail?
Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, many companies use debt to finance their growth without negative consequences. When we look at debt levels, we first look at cash and debt levels, together.
See our latest analysis for Splitit Payments
What is the net debt of Splitit Payments?
As you can see below, at the end of June 2021, Splitit Payments had $ 60.4 million in debt, up from $ 39.5 million a year ago. Click on the image for more details. However, his balance sheet shows that he holds $ 66.4 million in cash, so he actually has $ 6.04 million in net cash.
How strong is Splitit Payments’ balance sheet?
The latest balance sheet data shows that Splitit Payments had a liability of $ 4.30 million due within one year and a liability of $ 60.4 million due thereafter. In compensation for these obligations, it had cash of US $ 66.4 million as well as receivables valued at US $ 52.9 million due within 12 months. So he actually has $ 54.6 million Following liquid assets as total liabilities.
This surplus strongly suggests that Splitit Payments has a rock solid balance sheet (and debt is no cause for concern). From this point of view, lenders should feel as secure as the beloved of a black belt karate master. In short, Splitit Payments has clean cash flow, so it’s fair to say it doesn’t have a lot of debt! The balance sheet is clearly the area you need to focus on when analyzing debt. But ultimately, the future profitability of the business will decide whether Splitit Payments 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.
Over 12 months, Splitit Payments reported revenue of US $ 9.2 million, a gain of 170%, although it reported no profit before interest and taxes. Its fairly obvious shareholders are therefore hoping for more growth!
So how risky are Splitit payments?
We are convinced that loss-making companies are, in general, riskier than profitable companies. And over the past year, Splitit Payments has recorded a loss of profit before interest and taxes (EBIT), frankly. Indeed, during that time it burned $ 49 million in cash and recorded a loss of $ 35 million. With only $ 6.04 million on the balance sheet, it looks like it will soon have to raise capital again. The good news for shareholders is that Splitit Payments is experiencing tremendous revenue growth, so there is a very good chance that it will be able to increase its free cash flow in the years to come. High growth nonprofits can be risky, but they can also offer great rewards. The balance sheet is clearly the area you need to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. Concrete example: we have spotted 4 warning signs for Splitit payments you have to be aware of that, and one of them makes us a little uncomfortable.
At the end of the day, it’s often best to focus on businesses with no net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.
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