Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Impellam Group plc (LON:IPEL) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Impellam Group

How Much Debt Does Impellam Group Carry?

You can click the graphic below for the historical numbers, but it shows that as of July 2022 Impellam Group had UK£103.8m of debt, an increase on UK£94.9m, over one year. But on the other hand it also has UK£126.7m in cash, leading to a UK£22.9m net cash position.

How Healthy Is Impellam Group's Balance Sheet?

We can see from the most recent balance sheet that Impellam Group had liabilities of UK£776.7m falling due within a year, and liabilities of UK£87.1m due beyond that. Offsetting these obligations, it had cash of UK£126.7m as well as receivables valued at UK£729.6m due within 12 months. So these liquid assets roughly match the total liabilities.

Since publicly traded Impellam Group shares are worth a total of UK£211.1m, 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. While it does have liabilities worth noting, Impellam Group also has more cash than debt, so we're pretty confident it can manage its debt safely.

Even more impressive was the fact that Impellam Group grew its EBIT by 271% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But it is Impellam Group's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.