NTG Nordic Transport Group (CPH:NTG) appears to be using debt sparingly

Warren Buffett said: “Volatility is far from synonymous with risk. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. Above all, NTG Nordic Transport Group A/S (CPH:NTG) is in debt. But the real question is whether this debt makes the business risky.

What risk does debt carry?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. By replacing dilution, however, debt can be a great tool for companies 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.

See our latest analysis for NTG Nordic Transport Group

What is the debt of NTG Nordic Transport Group?

As you can see below, at the end of September 2021, NTG Nordic Transport Group had a debt of 288.6 million kr, compared to 47.9 million kr a year ago. Click on the image for more details. However, he has 248.0 million kr of cash to offset this, resulting in a net debt of approximately 40.6 million kr.

CPSE: NTG Debt to Equity History January 19, 2022

How strong is NTG Nordic Transport Group’s balance sheet?

The latest balance sheet data shows that NTG Nordic Transport Group had liabilities of kr 1.81 billion maturing within one year, and liabilities of kr 852.8 million maturing thereafter. In return, he had 248.0 million kr in cash and 1.34 billion kr in receivables due within 12 months. Thus, its liabilities outweigh the sum of its cash and (short-term) receivables of kr 1.08 billion.

Given that NTG Nordic Transport Group has a market capitalization of 10.4 billion kr, it is hard to believe that these liabilities pose a big threat. But there are enough liabilities that we certainly recommend that shareholders continue to monitor the balance sheet in the future. Carrying virtually no net debt, NTG Nordic Transport Group has very little debt.

We measure a company’s leverage against its earning power by looking at its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and calculating how easily its earnings before interest and taxes (EBIT ) covers its interest charge (interest coverage). In this way, we consider both the absolute amount of debt, as well as the interest rates paid on it.

NTG Nordic Transport Group is very low in debt (net of cash) and has a debt/EBITDA ratio of 0.086 and an EBIT of 12.7 times interest expense. Indeed, relative to its earnings, its leverage seems light as a feather. On top of that, we are pleased to report that NTG Nordic Transport Group increased its EBIT by 97%, reducing the specter of future debt repayments. There is no doubt that we learn the most about debt from the balance sheet. But it is future earnings, more than anything, that will determine NTG Nordic Transport Group’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 analyst earnings forecast report interesting.

Finally, a company can only repay its debts with cold hard cash, not with book profits. We therefore always check how much of this EBIT is converted into free cash flow. Fortunately for all shareholders, NTG Nordic Transport Group has actually produced more free cash flow than EBIT over the past three years. This kind of high cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Our point of view

NTG Nordic Transport Group’s interest coverage suggests he can manage his debt as easily as Cristiano Ronaldo could score a goal against an Under-14 goalkeeper. And this is only the beginning of good news since its conversion of EBIT into free cash flow is also very pleasing. It seems that NTG Nordic Transport Group has no trouble standing and has no reason to fear its lenders. In our view, he has a healthy and happy record. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks reside on the balance sheet, far from it. We have identified 1 warning sign with NTG Nordic Transport Group, and understanding them should be part of your investment process.

If you are interested in investing in companies that can generate profits without the burden of debt, then check out this free list of growing companies that have net cash on the balance sheet.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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