Funding activities

Livent (NYSE: LTHM) Uses Debt Moderately

Warren Buffett said: “Volatility is far from synonymous with risk”. So it might be obvious, then, that you need to factor in debt, when you think about how risky a given stock is because too much debt can sink a business. Like many other companies Livent Company (NYSE: LTHM) uses debt. But the real question is whether this debt makes the business risky.

What risk does debt entail?

Debt helps a business until it struggles to pay it off, either with new capital or with free cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. 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 think of a business’s use of debt, we first look at cash flow and debt together.

What is Livent’s debt?

The image below, which you can click for more details, shows that in March 2021, Livent was in debt of $ 298.9 million, up from $ 211.1 million in a year. However, he also had US $ 21.5 million in cash, and therefore his net debt is US $ 277.4 million.

debt history analysisNYSE: LTHM Debt to Capital History May 22, 2021

How strong is Livent’s balance sheet?

The latest balance sheet data shows that Livent had liabilities of US $ 60.2 million due within one year, and liabilities of US $ 332.8 million due thereafter. In return, he had US $ 21.5 million in cash and US $ 106.8 million in receivables due within 12 months. It therefore has liabilities totaling $ 264.7 million more than its cash and short-term receivables combined.

Considering that Livent has a market capitalization of US $ 2.56 billion, it’s hard to believe that these liabilities pose a significant threat. Having said that, it is clear that we must continue to monitor his record lest it get worse. There is no doubt that we learn the most about debt from the balance sheet. But it is future profits, more than anything, that will determine Livent’s 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 report on analysts’ earnings forecasts Be interesting.

Over 12 months, Livent recorded a loss in EBIT and saw its revenue fall to $ 311 million, a decrease of 13%. We would much prefer to see the growth.

Caveat Emptor

Not only has Livent’s revenue slipped over the past twelve months, it has also produced negative earnings before interest and taxes (EBIT). To be precise, the EBIT loss amounted to US $ 11 million. When we look at this and recall the liabilities of its balance sheet, versus the cash flow, it seems unwise to us that the company is in debt. Frankly, we think the record is far from adequate, although it could improve over time. However, the fact that he burned $ 69 million in cash in the last year doesn’t help. So, to be frank, we think it’s risky. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. These risks can be difficult to spot. Every company has them, and we’ve spotted 2 warning signs for Livent (of which 1 is significant!) that you need to know dedebted and debt free.

At the end of the day, it’s often best to focus on businesses with no net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.

This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim 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 information. Simply Wall St has no position in any of the stocks mentioned.