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. As with many other companies Computacenter plc (LON:CCC) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

See our latest analysis for Computacenter

What Is Computacenter's Debt?

As you can see below, at the end of December 2020, Computacenter had UK£121.2m of debt, up from UK£80.8m a year ago. Click the image for more detail. But on the other hand it also has UK£309.8m in cash, leading to a UK£188.7m net cash position.

A Look At Computacenter's Liabilities

According to the last reported balance sheet, Computacenter had liabilities of UK£1.59b due within 12 months, and liabilities of UK£184.7m due beyond 12 months. On the other hand, it had cash of UK£309.8m and UK£1.23b worth of receivables due within a year. So its liabilities total UK£229.8m more than the combination of its cash and short-term receivables.

Of course, Computacenter has a market capitalization of UK£2.96b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Computacenter boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Computacenter has boosted its EBIT by 31%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Computacenter'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.