Does Alamo Group (NYSE:ALG) Have A Healthy Balance Sheet?
Does Alamo Group (NYSE:ALG) Have A Healthy Balance Sheet?
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.' 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 Alamo Group Inc. (NYSE:ALG) does use debt in its business. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Alamo Group
How Much Debt Does Alamo Group Carry?
As you can see below, at the end of December 2022, Alamo Group had US$301.9m of debt, up from US$269.5m a year ago. Click the image for more detail. However, it does have US$47.0m in cash offsetting this, leading to net debt of about US$254.9m.
How Healthy Is Alamo Group's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Alamo Group had liabilities of US$190.5m due within 12 months and liabilities of US$332.6m due beyond that. Offsetting these obligations, it had cash of US$47.0m as well as receivables valued at US$318.5m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$157.6m.
Since publicly traded Alamo Group shares are worth a total of US$2.15b, it seems unlikely that this level of liabilities would be a major 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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Alamo Group's net debt is only 1.3 times its EBITDA. And its EBIT covers its interest expense a whopping 10.9 times over. So we're pretty relaxed about its super-conservative use of debt. Another good sign is that Alamo Group has been able to increase its EBIT by 27% in twelve months, making it easier to pay down debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Alamo Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So we always check how much of that EBIT is translated into free cash flow. In the last three years, Alamo Group's free cash flow amounted to 48% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.
Our View
Alamo Group's EBIT growth rate suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And the good news does not stop there, as its interest cover also supports that impression! Looking at the bigger picture, we think Alamo Group's use of debt seems quite reasonable and we're not concerned about it. While debt does bring risk, when used wisely it can also bring a higher return on equity. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Alamo Group is showing 1 warning sign in our investment analysis , you should know about...
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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Li·Lu曾說過,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。當你考察一家公司的風險有多大時,考慮它的資產負債表是很自然的,因為當一家企業倒閉時,債務往往會涉及到它。我們可以看到阿拉莫集團公司(紐約證券交易所代碼:ALG)確實在其業務中使用債務。但更重要的問題是:這筆債務造成了多大的風險?
債務在什麼時候是危險的?
當一家企業無法輕鬆履行這些義務時,債務和其他債務就會變得有風險,無論是通過自由現金流還是通過以有吸引力的價格籌集資本。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。儘管這並不常見,但我們確實經常看到負債累累的公司永久性地稀釋股東的權益,因為貸款人迫使他們以令人沮喪的價格籌集資金。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。當我們考慮一家公司的債務用途時,我們首先會把現金和債務放在一起看。
查看我們對阿拉莫集團的最新分析
阿拉莫集團背負著多少債務?
如下所示,截至2022年12月底,阿拉莫集團的債務為3.019億美元,高於一年前的2.695億美元。單擊圖像瞭解更多詳細資訊。然而,它確實有4700萬美元的現金來抵消這一點,導致淨債務約為2.549億美元。
阿拉莫集團的資產負債表有多健康?
放大最新的資產負債表數據,我們可以看到,阿拉莫集團有1.905億美元的負債在12個月內到期,超過12個月的負債有3.326億美元到期。為了抵消這些債務,它有4700萬美元的現金以及價值3.185億美元的應收賬款在12個月內到期。因此,它的負債比現金和(近期)應收賬款之和高出1.576億美元。
由於公開交易的阿拉莫集團股票總價值21.5億美元,這種負債水準似乎不太可能構成重大威脅。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準。第一個是淨債務除以利息、稅項、折舊和攤銷前收益(EBITDA),第二個是其息稅前收益(EBIT)覆蓋其利息支出(或簡稱利息覆蓋)的多少倍。因此,我們考慮債務相對於收益,包括折舊和攤銷費用。
阿拉莫集團的淨債務僅為其EBITDA的1.3倍。它的息稅前利潤高達利息支出的10.9倍。因此,我們對它對債務的超級保守使用相當放鬆。另一個好跡象是,阿拉莫集團能夠在12個月內將息稅前利潤增加27%,從而更容易償還債務。在分析債務水準時,資產負債表顯然是一個起點。但最重要的是,未來的收益將決定阿拉莫集團未來保持健康資產負債表的能力。所以,如果你關注未來,你可以看看這個免費顯示分析師利潤預測的報告。
最後,企業需要自由現金流來償還債務;會計利潤只是不能削減這一點。因此,我們總是檢查EBIT中有多少轉化為自由現金流。在過去的三年裡,阿拉莫集團的自由現金流佔其息稅前利潤的48%,低於我們的預期。這種疲軟的現金轉換增加了處理債務的難度。
我們的觀點
阿拉莫集團的息稅前利潤增長率表明,它可以輕鬆地處理債務,就像克裡斯蒂亞諾·羅納爾多在對陣14歲以下門將的比賽中進球一樣。好消息不止於此,因為它的利息封面也支持這種印象!從大局來看,我們認為阿拉莫集團的債務使用似乎相當合理,我們並不擔心。儘管債務確實會帶來風險,但如果使用得當,它也可以帶來更高的股本回報率。毫無疑問,我們從資產負債表中瞭解到的債務最多。但歸根結底,每家公司都可能包含存在於資產負債表之外的風險。請注意,阿拉莫集團正在展示在我們的投資分析中出現1個警告信號,你應該知道關於……
如果你對一家增長迅速、資產負債表堅如磐石的公司更感興趣,那麼請立即查看我們的淨現金成長型股票清單。
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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。
譯文內容由第三人軟體翻譯。
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