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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Wilmington plc (LON:WIL) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Wilmington

How Much Debt Does Wilmington Carry?

You can click the graphic below for the historical numbers, but it shows that Wilmington had UK£12.7m of debt in December 2021, down from UK£30.6m, one year before. However, its balance sheet shows it holds UK£24.2m in cash, so it actually has UK£11.4m net cash.

A Look At Wilmington's Liabilities

Zooming in on the latest balance sheet data, we can see that Wilmington had liabilities of UK£54.2m due within 12 months and liabilities of UK£23.6m due beyond that. Offsetting these obligations, it had cash of UK£24.2m as well as receivables valued at UK£26.4m due within 12 months. So its liabilities total UK£27.3m more than the combination of its cash and short-term receivables.

Of course, Wilmington has a market capitalization of UK£211.2m, so these liabilities are probably manageable. 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, Wilmington also has more cash than debt, so we're pretty confident it can manage its debt safely.

In addition to that, we're happy to report that Wilmington has boosted its EBIT by 89%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Wilmington 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.