Is Protech Home Medical (CVE:PTQ) Using Debt In A Risky Way?

CVE:PTQ) does use debt in its business. But is this debt a concern to shareholders?” data-reactid=”28″>Warren Buffett famously said, ‘Volatility is far from synonymous with risk.’ It’s only natural to consider a company’s balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Protech Home Medical Corp. (CVE:PTQ) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company’s use of debt, we first look at cash and debt together.

View our latest analysis for Protech Home Medical ” data-reactid=”31″> View our latest analysis for Protech Home Medical

How Much Debt Does Protech Home Medical Carry?

The image below, which you can click on for greater detail, shows that at June 2020 Protech Home Medical had debt of CA$15.5m, up from CA$13.5m in one year. But it also has CA$44.7m in cash to offset that, meaning it has CA$29.2m net cash.

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A Look At Protech Home Medical’s Liabilities

this free report on analyst profit forecasts to be interesting.” data-reactid=”52″>This short term liquidity is a sign that Protech Home Medical could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Protech Home Medical boasts net cash, so it’s fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Protech Home Medical’s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Protech Home Medical wasn’t profitable at an EBIT level, but managed to grow its revenue by 23%, to CA$92m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Protech Home Medical?

3 warning signs we think you should be aware of.” data-reactid=”55″>Although Protech Home Medical had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CA$969k. So when you consider it has net cash, along with the statutory profit, the stock probably isn’t as risky as it might seem, at least in the short term. Keeping in mind its 23% revenue growth over the last year, we think there’s a decent chance the company is on track. There’s no doubt fast top line growth can cure all manner of ills, for a stock. 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. Take risks, for example – Protech Home Medical has 3 warning signs we think you should be aware of.

our special list of such companies (all with a track record of profit growth). It’s free.” data-reactid=”60″>At the end of the day, it’s often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It’s free.

Get in touch with us directly. Alternatively, email [email protected].” data-reactid=”61″>This article by Simply Wall St is general in nature. 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.

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