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. It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Land & Homes Group Limited (ASX:LHM) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Land & Homes Group

What Is Land & Homes Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2019 Land & Homes Group had AU$36.8m of debt, an increase on AU$33.6m, over one year. And it doesn't have much cash, so its net debt is about the same.

A Look At Land & Homes Group's Liabilities

Zooming in on the latest balance sheet data, we can see that Land & Homes Group had liabilities of AU$32.5m due within 12 months and liabilities of AU$5.67m due beyond that. On the other hand, it had cash of AU$542.8k and AU$59.4k worth of receivables due within a year. So it has liabilities totalling AU$37.6m more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the AU$9.44m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet." So we'd watch its balance sheet closely, without a doubt At the end of the day, Land & Homes Group would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Land & Homes Group will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.