Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, The Goodyear Tire & Rubber Company (NASDAQ:GT) does carry debt. But is this debt a concern to shareholders?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for Goodyear Tire & Rubber
How Much Debt Does Goodyear Tire & Rubber Carry?
The image below, which you can click on for greater detail, shows that at June 2022 Goodyear Tire & Rubber had debt of US$8.15b, up from US$7.71b in one year. However, it does have US$1.25b in cash offsetting this, leading to net debt of about US$6.90b.
NasdaqGS:GT Debt to Equity History October 23rd 2022
A Look At Goodyear Tire & Rubber's Liabilities
According to the last reported balance sheet, Goodyear Tire & Rubber had liabilities of US$7.12b due within 12 months, and liabilities of US$10.4b due beyond 12 months. On the other hand, it had cash of US$1.25b and US$3.28b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$13.0b.
The deficiency here weighs heavily on the US$3.26b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Goodyear Tire & Rubber would likely require a major re-capitalisation if it had to pay its creditors today.
We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
Goodyear Tire & Rubber's debt is 3.3 times its EBITDA, and its EBIT cover its interest expense 2.5 times over. This suggests that while the debt levels are significant, we'd stop short of calling them problematic. The good news is that Goodyear Tire & Rubber grew its EBIT a smooth 62% over the last twelve months. Like the milk of human kindness that sort of growth increases resilience, making the company more capable of managing debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Goodyear Tire & Rubber 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. So it's worth checking how much of that EBIT is backed by free cash flow. In the last two years, Goodyear Tire & Rubber's free cash flow amounted to 37% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.
Our View
We'd go so far as to say Goodyear Tire & Rubber's level of total liabilities was disappointing. But on the bright side, its EBIT growth rate is a good sign, and makes us more optimistic. Overall, we think it's fair to say that Goodyear Tire & Rubber has enough debt that there are some real risks around the balance sheet. If everything goes well that may pay off but the downside of this debt is a greater risk of permanent losses. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Goodyear Tire & Rubber , and understanding them should be part of your investment process.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.
禾倫·巴菲特曾經說過,「波動性與風險遠非同義詞。」 因此,當您考慮任何給定股票的風險時,需要考慮債務,因爲過多的債務可能會拖垮一家公司。重要的是,固特異輪胎與橡膠公司(納斯達克:GT)的確有債務。 但這筆債務會不會讓股東擔心?
債務帶來了什麼風險?
債務可以幫助企業在新資本或自由現金流出現問題時度過難關。 資本主義的一部分是「創造性毀滅」的過程,即失敗的企業被銀行家無情地清算。 雖然這不太常見,但我們經常看到債務公司因債權人迫使他們以困境價格籌集資本而永久稀釋股東。 當然,債務可以成爲企業的重要工具,特別是對於資本密集型企業。 當我們考慮公司使用債務時,我們首先查看現金和債務的總和。
查看我們最新的Goodyear Tire & Rubber分析
固特異輪胎的債務規模是多少?
下面的圖片展示了截至2022年6月,固特異輪胎與橡膠的債務爲815億美元,比一年前的771億美元增加。 然而,它確實有125億美元的現金來抵消這筆債務,導致淨債務約爲690億美元。
NasdaqGS: 共同債務股權歷史2022年10月23日
Goodyear Tire & Rubber的負債情況一覽
根據最近披露的資產負債表,固特異輪胎及橡膠公司有712億美元的負債需在12個月內償還,以及1040億美元的負債需在12個月以上償還。另一方面,它有125億美元的現金和328億美元的應收賬款需要在一年內到期。因此,其負債超過現金和(短期)應收賬款的總額約130億美元。
這裏的赤字嚴重拖累了326億美元的公司本身,就像一個兒童承受着滿滿一揹包書籍、體育器材和小號的重壓。因此,我們確實認爲股東們需要密切關注這一點。畢竟,固特異輪胎及橡膠公司如果今天必須償還債務,很可能需要進行大規模再資本化。
我們通過將公司的淨債務與其息稅折舊攤銷前利潤(EBITDA)相除,並計算其息稅前利潤(EBIT)如何覆蓋其利息費用(利息覆蓋率)來衡量公司的債務負擔相對於其盈利能力。因此,我們同時考慮債務的絕對數量以及所支付的利率。
固特異輪胎公司的債務是其EBITDA的3.3倍,其EBIT覆蓋利息支出超過2.5倍。這表明雖然債務水平相當高,但我們不願稱其爲問題。好消息是,過去十二個月,固特異輪胎公司的EBIT增長順利,增長了62%。像人類善良之情牛奶一樣,這種增長增強了企業的抗風險能力,使其更有能力管理債務。毫無疑問,從資產負債表中我們可以了解最多關於債務。但最終,企業未來的盈利能力將決定固特異輪胎公司能否隨時間加強其資產負債表。因此,如果你專注於未來,你可以查看這份顯示分析師利潤預測的免費報告。
但我們最終考慮的也很重要,因爲一家公司無法用虛擬利潤償還債務;它需要冰冷的現金。因此,值得查看多少EBIT是由自由現金流支持的。在過去兩年中,固特異輪胎公司的自由現金流量佔其EBIT的37%,低於我們的預期。這種較弱的現金轉換率使其更難處理債務。
我們的觀點
我們可以毫不誇張地說,固特異輪胎公司的總負債水平令人失望。但光明面是,其EBIT增長率是一個好跡象,讓我們更加樂觀。總的來說,我們認爲可以說固特異輪胎公司負債過重,其資產負債表存在一些真實風險。如果一切順利,可能會得到回報,但這筆債務的下行風險是永久損失的風險更大。在分析債務水平時,資產負債表是顯而易見的起點。然而,並非所有的投資風險都存在於資產負債表中—遠非如此。我們已經識別出固特異輪胎公司的1個警示信號,了解它們應該成爲你的投資流程的一部分。
如果您有興趣投資能夠在不負債的情況下增長利潤的企業,請查看這份免費列表,其中列出了在資產負債表上擁有淨現金的成長型企業。
對本文有反饋?關於內容有所顧慮?直接和我們聯繫。或電郵 editorial-team (at) simplywallst.com。
這篇文章是Simply Wall St的一般性文章。我們根據歷史數據和分析師預測提供評論,只使用公正的方法論,我們的文章並不意味着提供任何金融建議。文章不構成買賣任何股票的建議,也不考慮您的目標或您的財務狀況。我們的目標是帶給您基本數據驅動的長期關注分析。請注意,我們的分析可能不考慮最新的價格敏感公司公告或定性材料。Simply Wall St沒有任何股票頭寸。