In This Article:
The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that Myers Industries, Inc. (NYSE:MYE) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Myers Industries
What Is Myers Industries's Net Debt?
As you can see below, Myers Industries had US$77.0m of debt, at June 2019, which is about the same the year before. You can click the chart for greater detail. On the flip side, it has US$75.2m in cash leading to net debt of about US$1.78m.
How Strong Is Myers Industries's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Myers Industries had liabilities of US$86.6m due within 12 months and liabilities of US$104.0m due beyond that. Offsetting this, it had US$75.2m in cash and US$73.1m in receivables that were due within 12 months. So its liabilities total US$42.3m more than the combination of its cash and short-term receivables.
Given Myers Industries has a market capitalization of US$629.3m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Carrying virtually no net debt, Myers Industries has a very light debt load indeed.
In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.