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 can see that Nordic American Tankers Limited (NYSE:NAT) does use debt in its business. But is this debt a concern to shareholders?
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. 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 think about a company's use of debt, we first look at cash and debt together.
How Much Debt Does Nordic American Tankers Carry?
The chart below, which you can click on for greater detail, shows that Nordic American Tankers had US$293.7m in debt in March 2024; about the same as the year before. On the flip side, it has US$45.9m in cash leading to net debt of about US$247.7m.
How Strong Is Nordic American Tankers' Balance Sheet?
We can see from the most recent balance sheet that Nordic American Tankers had liabilities of US$147.7m falling due within a year, and liabilities of US$193.3m due beyond that. On the other hand, it had cash of US$45.9m and US$22.3m worth of receivables due within a year. So its liabilities total US$272.7m more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since Nordic American Tankers has a market capitalization of US$862.3m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution.
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). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).
Nordic American Tankers has net debt worth 1.7 times EBITDA, which isn't too much, but its interest cover looks a bit on the low side, with EBIT at only 3.3 times the interest expense. While these numbers do not alarm us, it's worth noting that the cost of the company's debt is having a real impact. The bad news is that Nordic American Tankers saw its EBIT decline by 13% over the last year. If that sort of decline is not arrested, then the managing its debt will be harder than selling broccoli flavoured ice-cream for a premium. 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 Nordic American Tankers 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.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. In the last two years, Nordic American Tankers's free cash flow amounted to 28% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.
Our View
On the face of it, Nordic American Tankers's interest cover left us tentative about the stock, and its EBIT growth rate was no more enticing than the one empty restaurant on the busiest night of the year. Having said that, its ability handle its debt, based on its EBITDA, isn't such a worry. Looking at the balance sheet and taking into account all these factors, we do believe that debt is making Nordic American Tankers stock a bit risky. Some people like that sort of risk, but we're mindful of the potential pitfalls, so we'd probably prefer it carry less debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Nordic American Tankers you should be aware of, and 1 of them makes us a bit uncomfortable.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
David Ibenは、「変動は私たちが心配するリスクではない。重要なのは、資本の永久的な損失を避けることです。」と述べているので、ある株式がどれだけリスクがあるか考えるときには、その企業が抱える債務も考慮する必要があることが明らかになります。債務が多すぎる場合、企業が沈没することがあります。Nordic American Tankers Limited (NYSE:NAT) はビジネスに債務を利用していますが、この債務は株主にとって懸念材料になるのでしょうか?
下のチャートをクリックすると、2024年3月時点でNordic American TankersがUS$293.7mの債務を抱えており、前年とほぼ同じであることがわかります。一方、US$45.9mの現金があり、純債務はUS$247.7m程度です。
Nordic American Tankers のバランスシートはどの程度堅牢なのでしょうか?
最新のバランスシートから、Nordic American Tankers は1年以内に支払われるUS$147.7mの負債と、それ以上の期間に支払われるUS$193.3mの負債を抱えていました。一方、1年以内に受取予定のUS$22.3mの債権と現金US$45.9mがあります。そのため、債務残高は、現金や短期債権の合計を超過しています。
Nordic American Tankersの時価総額がUS$862.3mであることを考慮すると、債務を返済するためのキャピタルを調達することでバランスシートを強化することができるでしょう。しかし、株主を薄めることなく債務を管理できるかどうかを注意深く調べる必要があります。
Nordic American Tankersの純債務はEBITDAの1.7倍で、あまり多くありませんが、利息カバーがやや低いようで、EBITは利息費用のわずか3.3倍しかありません。これらの数字は私たちを警戒させるものではありませんが、企業の負債コストが実際に影響を与えていることに注意する必要があります。悪いニュースは、Nordic American TankersのEBITが過去1年間で13%減少したことです。このような減少が止まらない場合、債務管理はプレミアム価格でブロッコリー風味のアイスクリームを販売するよりも難しいことになるでしょう。バランスシートは、負債の分析に焦点を当てるべき領域です。しかし、最終的に企業の将来の収益性が、時間をかけてバランスシートを強化することができるかどうかを決定します。ですので、将来に注目する場合、アナリストによる利益予測を示す無料レポートをご覧いただけます。
税務当局は会計利益を好むかもしれませんが、貸し手は現金しか受け取りません。そこで、実際のフリーキャッシュフローによって合致するEBITの割合を見るのが論理的なステップです。直近2年間で、Nordic American TankersのフリーキャッシュフローはEBITの28%にすぎず、期待よりも少ないです。これはキャッシュコンバージョンが弱いため、負債を処理するのがより困難になるということを意味します。
私たちの見解
表面上は、Nordic American TankersのEBIT成長率は魅力的ではなく、利益カバーも少し心配です。しかし、Nordic American TankersはEBITDAに基づいて債務を管理する能力があります。バランスシートを見て、これらすべての要素を考慮に入れると、債務がNordic American Tankersの株式をややリスキーにしていると考えます。一部の投資家はこのようなリスクを楽しむかもしれませんが、私たちは潜在的な落とし穴に注意を払っており、Nordic American Tankersが少ない債務を抱えることを希望します。バランスシートは、負債の分析に焦点を当てるべき領域です。しかし、最終的にはバランスシートの外に存在するリスクもあるため、すべての企業はリスクを抱えていることに注意が必要です。たとえば、私たちはNordic American Tankersの危険な側面を2つ見つけました。そのうちの1つは私たちを少し不安にさせます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。
オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。