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. We note that Raven Industries, Inc. (NASDAQ:RAVN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Raven Industries
What Is Raven Industries's Net Debt?
You can click the graphic below for the historical numbers, but it shows that Raven Industries had US$2.90m of debt in April 2021, down from US$50.4m, one year before. However, it does have US$17.8m in cash offsetting this, leading to net cash of US$14.9m.
How Strong Is Raven Industries' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Raven Industries had liabilities of US$60.1m due within 12 months and liabilities of US$26.7m due beyond that. Offsetting this, it had US$17.8m in cash and US$68.9m in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.
Having regard to Raven Industries' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$2.07b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Raven Industries boasts net cash, so it's fair to say it does not have a heavy debt load!
On the other hand, Raven Industries saw its EBIT drop by 5.5% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Raven Industries can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.