Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We can see that World Fuel Services Corporation (NYSE:INT) does use debt in its business. But the more important question is: how much risk is that debt creating?
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. If things get really bad, the lenders can take control of the business. 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.
View our latest analysis for World Fuel Services
What Is World Fuel Services's Net Debt?
As you can see below, World Fuel Services had US$493.9m of debt, at September 2021, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$796.0m in cash, leading to a US$302.1m net cash position.
A Look At World Fuel Services' Liabilities
Zooming in on the latest balance sheet data, we can see that World Fuel Services had liabilities of US$2.70b due within 12 months and liabilities of US$924.0m due beyond that. On the other hand, it had cash of US$796.0m and US$2.03b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$792.0m.
While this might seem like a lot, it is not so bad since World Fuel Services has a market capitalization of US$1.73b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, World Fuel Services also has more cash than debt, so we're pretty confident it can manage its debt safely.
Importantly, World Fuel Services's EBIT fell a jaw-dropping 33% in the last twelve months. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine World Fuel Services's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.