Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Knowles Corporation (NYSE:KN) does carry debt. But the real question is whether this debt is making the company risky.
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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.
Check out our latest analysis for Knowles
What Is Knowles's Debt?
The image below, which you can click on for greater detail, shows that Knowles had debt of US$73.0m at the end of June 2022, a reduction from US$169.5m over a year. However, because it has a cash reserve of US$47.7m, its net debt is less, at about US$25.3m.
NYSE:KN Debt to Equity History September 17th 2022
A Look At Knowles' Liabilities
The latest balance sheet data shows that Knowles had liabilities of US$149.1m due within a year, and liabilities of US$105.7m falling due after that. On the other hand, it had cash of US$47.7m and US$127.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$79.3m.
Given Knowles has a market capitalization of US$1.22b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward.
We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
Knowles's net debt is only 0.13 times its EBITDA. And its EBIT easily covers its interest expense, being 17.4 times the size. So we're pretty relaxed about its super-conservative use of debt. In addition to that, we're happy to report that Knowles has boosted its EBIT by 34%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Knowles's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So we always check how much of that EBIT is translated into free cash flow. Happily for any shareholders, Knowles actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.
Our View
Knowles's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And that's just the beginning of the good news since its conversion of EBIT to free cash flow is also very heartening. It looks Knowles has no trouble standing on its own two feet, and it has no reason to fear its lenders. For investing nerds like us its balance sheet is almost charming. Another factor that would give us confidence in Knowles would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
傳奇基金經理理想汽車·盧曾説,最大的投資風險不是價格的波動,而是你是否會遭受永久性的資本損失。因此,當你考慮到任何一隻股票的風險有多大時,你需要考慮債務可能是顯而易見的,因為太多的債務可能會讓一家公司倒閉。重要的是諾爾斯公司(紐約證券交易所代碼:KN)確實揹負着債務。但真正的問題是,這筆債務是否讓該公司面臨風險。
債務會帶來什麼風險?
債務幫助企業,直到企業難以償還債務,無論是用新資本還是用自由現金流。最終,如果公司不能履行其償還債務的法定義務,股東可能會一無所有地離開。然而,一種更常見(但仍然昂貴)的情況是,一家公司必須以低廉的股價稀釋股東的股份,才能控制債務。當然,許多公司利用債務為增長提供資金,沒有任何負面後果。在考慮一家公司的債務水平時,第一步是同時考慮其現金和債務。
查看我們對諾爾斯的最新分析
諾爾斯的債務是什麼?
下圖顯示,截至2022年6月底,諾爾斯的債務為7300萬美元,低於一年內的1.695億美元。您可以點擊查看更多詳細信息。然而,由於它擁有4770萬美元的現金儲備,其淨債務較少,約為2530萬美元。
紐約證券交易所:KN債轉股歷史2022年9月17日
看諾爾斯的債務
最新的資產負債表數據顯示,諾爾斯有1.491億美元的債務在一年內到期,1.057億美元的債務在一年後到期。另一方面,它有4770萬美元的現金和價值1.278億美元的應收賬款在一年內到期。因此,它的負債比現金和(近期)應收賬款之和高出7930萬美元。
鑑於諾爾斯的市值為12.2億美元,很難相信這些債務會構成太大威脅。但有足夠的負債,我們肯定會建議股東繼續監控未來的資產負債表。
我們使用兩個主要比率來告知我們債務相對於收益的水平。第一個是淨債務除以利息、税項、折舊和攤銷前收益(EBITDA),第二個是其息税前收益(EBIT)覆蓋其利息支出(或簡稱利息覆蓋)的多少倍。這樣,我們既考慮了債務的絕對量,也考慮了為其支付的利率。
諾爾斯的淨債務僅為其EBITDA的0.13倍。而且它的息税前利潤很容易彌補利息支出,是其規模的17.4倍。因此,我們對它對債務的超級保守使用相當放鬆。除此之外,我們很高興地報告,諾爾斯將其息税前利潤提高了34%,從而減少了未來償還債務的幽靈。在分析債務水平時,資產負債表顯然是一個起點。但最重要的是,未來的收益將決定諾爾斯未來保持健康資產負債表的能力。因此,如果你想看看專業人士的想法,你可能會發現這份關於分析師利潤預測的免費報告很有趣。
但我們的最後考慮也很重要,因為一家公司不能用賬面利潤來償還債務;它需要冷硬現金。因此,我們總是檢查EBIT中有多少轉化為自由現金流。對於任何股東來説,令人高興的是,諾爾斯在過去三年中產生的自由現金流實際上比息税前利潤還多。説到贏得貸款人的好感,沒有什麼比收到的現金更好的了。
我們的觀點
諾爾斯的利息掩護表明,它可以輕鬆地處理債務,就像克里斯蒂亞諾·羅納爾多在對陣14歲以下門將的比賽中進球一樣。這只是好消息的開始,因為它將息税前利潤轉換為自由現金流也非常令人鼓舞。看起來,諾爾斯在自力更生方面沒有困難,也沒有理由害怕它的貸款人。對於我們這樣的投資書呆子來説,它的資產負債表幾乎是迷人的。另一個讓我們對諾爾斯有信心的因素是,如果內部人士一直在買入股票:如果你也意識到了這個信號,你可以通過點擊這個鏈接立即找到答案。
歸根結底,關注那些沒有淨債務的公司往往更好。你可以訪問我們的這類公司的特別名單(都有利潤增長的記錄)。這是免費的。
對這篇文章有什麼反饋嗎?擔心內容嗎? 保持聯繫直接與我們聯繫。或者,也可以給編輯組發電子郵件,地址是implywallst.com。
本文由Simply Wall St.撰寫,具有概括性。我們僅使用不偏不倚的方法提供基於歷史數據和分析師預測的評論,我們的文章並不打算作為財務建議。它不構成買賣任何股票的建議,也沒有考慮你的目標或你的財務狀況。我們的目標是為您帶來由基本面數據驅動的長期重點分析。請注意,我們的分析可能不會將最新的對價格敏感的公司公告或定性材料考慮在內。Simply Wall St.對上述任何一隻股票都沒有持倉。