Health Check: How Cautiously Does Net 1 UEPS Technologies (NASDAQ: UEPS) Use Debt?
Legendary fund manager Li Lu (who Charlie Munger supported) once said, “The biggest risk in investing is not price volatility, but the possibility that you will suffer a permanent loss of capital. So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. We can see that Net 1 UEPS Technologies, Inc. (NASDAQ: UEPS) uses debt in its business. But the real question is whether this debt makes the business risky.
What risk does debt entail?
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. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. When we look at debt levels, we first consider both liquidity and debt levels.
Check out our latest review for Net 1 UEPS Technologies
What is the debt of Net 1 UEPS Technologies?
The image below, which you can click for more details, shows that Net 1 UEPS Technologies had a debt of US $ 11.4 million at the end of March 2021, a reduction from US $ 54.6 million. of US dollars over one year. However, it has US $ 207.8 million in cash offsetting this, leading to a net cash position of US $ 196.4 million.
A look at the liabilities of Net 1 UEPS Technologies
Zooming in on the latest balance sheet data, we can see that Net 1 UEPS Technologies had a liability of US $ 47.2 million due within 12 months and a liability of US $ 94.8 million beyond. In compensation for these obligations, it had cash of US $ 207.8 million as well as receivables valued at US $ 47.1 million due within 12 months. He can therefore avail himself of $ 112.9 million in liquid assets more than total Liabilities.
This surplus strongly suggests that Net 1 UEPS Technologies has a rock solid balance sheet (and debt is not of concern). With this in mind, one could postulate that its track record means that the company is able to cope with some adversity. Put simply, the fact that Net 1 UEPS Technologies has more cash than debt is arguably a good indication that it can safely manage its debt. When analyzing debt levels, the balance sheet is the obvious starting point. But it is future profits, more than anything, that will determine Net 1 UEPS Technologies’ ability to maintain a healthy balance sheet in the future. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Over 12 months, Net 1 UEPS Technologies recorded a loss in EBIT and saw its turnover fall to US $ 128 million, a decrease of 19%. We would much prefer to see the growth.
So how risky are Net 1 UEPS technologies?
Statistically speaking, businesses that lose money are riskier than those that earn it. And we note that Net 1 UEPS Technologies has recorded a loss of profit before interest and taxes (EBIT) in the last year. And during the same period, it recorded negative free cash outflows of US $ 83 million and a book loss of US $ 77 million. But the saving grace is the $ 196.4 million on the balance sheet. This means that he could continue to spend at his current rate for more than two years. Even if its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company does not produce regular free cash flow. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. Note that Net 1 UEPS Technologies displays 2 warning signs in our investment analysis , you must know…
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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