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. 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 Go-Ahead Group plc (LON:GOG) does carry debt. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, 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.
See our latest analysis for Go-Ahead Group
How Much Debt Does Go-Ahead Group Carry?
As you can see below, Go-Ahead Group had UK£407.1m of debt, at June 2019, which is about the same the year before. You can click the chart for greater detail. But on the other hand it also has UK£630.8m in cash, leading to a UK£223.7m net cash position.
A Look At Go-Ahead Group's Liabilities
Zooming in on the latest balance sheet data, we can see that Go-Ahead Group had liabilities of UK£903.7m due within 12 months and liabilities of UK£552.3m due beyond that. Offsetting these obligations, it had cash of UK£630.8m as well as receivables valued at UK£322.5m due within 12 months. So it has liabilities totalling UK£502.7m more than its cash and near-term receivables, combined.
This deficit isn't so bad because Go-Ahead Group is worth UK£903.5m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Go-Ahead Group boasts net cash, so it's fair to say it does not have a heavy debt load!
On the other hand, Go-Ahead Group saw its EBIT drop by 4.5% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. 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 Go-Ahead Group 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.