Would PAR (NYSE: PAR) technology fare better with less debt?
Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say this when he says “The biggest risk in investing is not price volatility, but if you will suffer a loss. permanent capital “. When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. Like many other companies PAR technology company (NYSE: PAR) uses debt. But does this debt concern shareholders?
What risk does debt entail?
Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
Check out our latest review for PAR technology
What is PAR Technology’s net debt?
As you can see below, at the end of September 2021, PAR Technology had a debt of US $ 303.0 million, up from US $ 105.5 million a year ago. Click on the image for more details. On the other hand, it has $ 200.3 million in cash, resulting in net debt of around $ 102.7 million.
How healthy is PAR technology’s track record?
We can see from the most recent balance sheet that PAR Technology had liabilities of US $ 60.5 million maturing within one year and liabilities of US $ 321.2 million maturing beyond that. . On the other hand, he had $ 200.3 million in cash and $ 48.9 million in receivables due within one year. As a result, its liabilities exceed the sum of its cash and (short-term) receivables by $ 132.5 million.
Considering that PAR Technology’s publicly traded shares are worth a total of US $ 1.57 billion, it seems unlikely that this level of liabilities is a major threat. But there are enough liabilities that we would certainly recommend that shareholders continue to monitor the balance sheet going forward. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether PAR Technology 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, PAR Technology has not been profitable on EBIT level, but has managed to increase its revenue by 25%, to US $ 260 million. Hopefully the business will be able to move towards profitability.
Even though PAR Technology has managed to grow its revenue quite adroitly, the hard truth is that it is losing money on the EBIT line. Indeed, it lost US $ 47 million in EBIT. Considering that besides the liabilities mentioned above, we are not convinced that the company should use so much debt. Quite frankly, we believe the record is far from up to par, although it could improve over time. However, it doesn’t help that he spent $ 58 million in cash in the past year. So, to be frank, we think it’s risky. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks lie on the balance sheet – far from it. For example, we have identified 2 warning signs for PAR technology that you need to be aware of.
Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.
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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