Health Check: How Cautiously Does Venator Materials (NYSE: VNTR) Use Debt?

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David Iben put it well when he said: “Volatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. We can see that Venator Materials PLC (NYSE: VNTR) uses debt in its business. But should shareholders be concerned about its use of debt?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we look at debt levels, we first consider both liquidity and debt levels.

See our latest review for Venator Materials

What is the debt of Venator Materials?

The graph below, which you can click for more details, shows that Venator Materials had a debt of US $ 971.0 million as of June 2021; about the same as the year before. On the other hand, it has $ 182.0 million in cash, resulting in net debt of around $ 789.0 million.

NYSE: VNTR Historical Debt to Equity September 21, 2021

How healthy is Venator Materials’ balance sheet?

We can see from the most recent balance sheet that Venator Materials had liabilities of US $ 434.0 million due within one year and liabilities of US $ 1.31 billion due beyond. . In compensation for these obligations, it had cash of US $ 182.0 million as well as receivables valued at US $ 401.0 million due within 12 months. It therefore has liabilities totaling US $ 1.16 billion more than its cash and short-term receivables combined.

That deficit casts a shadow over the $ 289.6 million company as a towering colossus of mere mortals. We therefore believe that shareholders should watch it closely. After all, Venator Materials would likely need a major recapitalization if it were to pay its creditors today. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Venator Materials can strengthen its balance sheet over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

Over the past year, Venator Materials has not been profitable in terms of EBIT, but has managed to grow its revenue by 4.7% to US $ 2.1 billion. We generally like to see unprofitable businesses growing faster, but each in their own way.

Emptor Warning

During the last twelve months, Venator Materials recorded a loss of profit before interest and taxes (EBIT). Indeed, it lost US $ 5.0 million in EBIT. The combination of this information with the significant liabilities that we have already mentioned makes us very hesitant about this stock, to say the least. Of course, he may be able to improve his situation with a little luck and a good execution. But we think that’s unlikely, given he lacks liquid assets and spent US $ 20 million last year. So we think this stock is risky, like walking through a dirty dog ​​park with a mask on. The balance sheet is clearly the area you need to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. To do this, you need to know the 1 warning sign we spotted with Venator Materials.

If you are interested in investing in companies that can generate profits without the burden of debt, check out this page free list of growing companies that have net cash on the balance sheet.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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