Warren Buffett famously declared, ‘Volatility is far from synonymous with risk.’ So it seems the smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess how risky a company is. Importantly, MYR Group Inc. (NASDAQ:MYRG) does carry debt. But is this debt a concern to shareholders?
When Is Debt A Problem?
Generally speaking, debt only becomes a real problem when a company can’t easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to obtain debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company’s debt levels is to consider its cash and debt toobtainher.
What Is MYR Group’s Net Debt?
As you can see below, at the finish of March 2025, MYR Group had US$87.2m of debt, up from US$37.9m a year ago. Click the image for more detail. On the flip side, it has US$10.9m in cash leading to net debt of about US$76.3m.
How Strong Is MYR Group’s Balance Sheet?
We can see from the most recent balance sheet that MYR Group had liabilities of US$738.7m falling due within a year, and liabilities of US$234.6m due beyond that. Offsetting this, it had US$10.9m in cash and US$922.8m in receivables that were due within 12 months. So it has liabilities totalling US$39.7m more than its cash and near-term receivables, combined.
This state of affairs indicates that MYR Group’s balance sheet views quite solid, as its total liabilities are just about equal to its liquid assets. So while it’s hard to imagine that the US$2.93b company is struggling for cash, we still consider it’s worth monitoring its balance sheet.
See our latest analysis for MYR Group
We measure a company’s debt load relative to its earnings power by viewing at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
With net debt sitting at just 0.62 times EBITDA, MYR Group is arguably pretty conservatively geared. And this view is supported by the solid interest coverage, with EBIT coming in at 9.0 times the interest expense over the last year. It is just as well that MYR Group’s load is not too heavy, becaapply its EBIT was down 53% over the last year. When it comes to paying off debt, falling earnings are no more applyful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine MYR Group’s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals consider, you might find this free report on analyst profit forecasts to be interesting.
But our final consideration is also important, becaapply a company cannot pay debt with paper profits; it requireds cold hard cash. So the logical step is to view at the proportion of that EBIT that is matched by actual free cash flow. During the last three years, MYR Group produced sturdy free cash flow equating to 51% of its EBIT, about what we’d expect. This cold hard cash means it can reduce its debt when it wants to.
Our View
Based on what we’ve seen MYR Group is not finding it simple, given its EBIT growth rate, but the other factors we considered give us caapply to be optimistic. There’s no doubt that its ability to handle its debt, based on its EBITDA, is pretty flash. When we consider all the factors mentioned above, we do feel a bit cautious about MYR Group’s apply of debt. While debt does have its upside in higher potential returns, we consider shareholders should definitely consider how debt levels might create the stock more risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet – far from it. To that finish, you should be aware of the 1 warning sign we’ve spotted with MYR Group .
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.
New: Manage All Your Stock Portfolios in One Place
We’ve created the ultimate portfolio companion for stock investors, and it’s free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
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 utilizing an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focapplyd 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.
Leave a Reply