David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies PAR Technology Corporation (NYSE:PAR) makes use of debt. 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is PAR Technology's Debt?
As you can see below, PAR Technology had US$378.7m of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has US$142.5m in cash leading to net debt of about US$236.2m.
How Strong Is PAR Technology's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that PAR Technology had liabilities of US$79.1m due within 12 months and liabilities of US$389.3m due beyond that. On the other hand, it had cash of US$142.5m and US$50.2m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$275.7m.
Since publicly traded PAR Technology shares are worth a total of US$2.03b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if PAR Technology can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year PAR Technology wasn't profitable at an EBIT level, but managed to grow its revenue by 30%, to US$426m. With any luck the company will be able to grow its way to profitability.
Caveat Emptor
Despite the top line growth, PAR Technology still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$73m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$51m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with PAR Technology .
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.