Yahoo Finance International Money Express (NASDAQ:IMXI) Seems To Use Debt Rather Sparingly
The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that International Money Express, Inc. (NASDAQ:IMXI) does use debt in its business. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company 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.
View our latest analysis for International Money Express
How Much Debt Does International Money Express Carry?
The image below, which you can click on for greater detail, shows that International Money Express had debt of US$84.1m at the end of September 2021, a reduction from US$89.4m over a year. But it also has US$125.1m in cash to offset that, meaning it has US$41.1m net cash.
How Healthy Is International Money Express' Balance Sheet?
We can see from the most recent balance sheet that International Money Express had liabilities of US$104.2m falling due within a year, and liabilities of US$81.5m due beyond that. On the other hand, it had cash of US$125.1m and US$98.1m worth of receivables due within a year. So it actually has US$37.5m more liquid assets than total liabilities.
This surplus suggests that International Money Express has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that International Money Express has more cash than debt is arguably a good indication that it can manage its debt safely.
In addition to that, we're happy to report that International Money Express has boosted its EBIT by 37%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if International Money Express can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While International Money Express has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, International Money Express produced sturdy free cash flow equating to 51% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.
Summing up
While it is always sensible to investigate a company's debt, in this case International Money Express has US$41.1m in net cash and a decent-looking balance sheet. And we liked the look of last year's 37% year-on-year EBIT growth. So we don't think International Money Express's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 2 warning signs we've spotted with International Money Express (including 1 which shouldn't be ignored) .
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only 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, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
