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 note that Aritzia Inc. (TSE:ATZ) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
When Is Debt A Problem?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. When we think about a company’s use of debt, we first look at cash and debt together.
What Is Aritzia’s Debt?
You can click the graphic below for the historical numbers, but it shows that as of December 2019 Aritzia had CA$74.7m of debt, an increase on CA$74.6, over one year. However, its balance sheet shows it holds CA$95.7m in cash, so it actually has CA$21.0m net cash.
How Strong Is Aritzia’s Balance Sheet?
We can see from the most recent balance sheet that Aritzia had liabilities of CA$181.1m falling due within a year, and liabilities of CA$541.6m due beyond that. Offsetting these obligations, it had cash of CA$95.7m as well as receivables valued at CA$5.98m due within 12 months. So its liabilities total CA$621.1m more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since Aritzia has a market capitalization of CA$2.52b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, Aritzia boasts net cash, so it’s fair to say it does not have a heavy debt load!
In addition to that, we’re happy to report that Aritzia has boosted its EBIT by 34%, thus reducing the spectre of future debt repayments. There’s no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Aritzia can strengthen its balance sheet over time. So if you’re focused on the future you can check out this free report showing analyst profit forecasts.
Finally, a business needs free cash flow to pay off debt; accounting profits just don’t cut it. Aritzia may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Aritzia produced sturdy free cash flow equating to 65% of its EBIT, about what we’d expect. This cold hard cash means it can reduce its debt when it wants to.
Although Aritzia’s balance sheet isn’t particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of CA$21.0m. And it impressed us with its EBIT growth of 34% over the last year. So we don’t think Aritzia’s use of debt is risky. There’s no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we’ve discovered 1 warning sign for Aritzia which any shareholder or potential investor should be aware of.
When all is said and done, sometimes its easier to focus on companies that don’t even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
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Funding unveiled for mining investment event – Whitehorse Star
The federal government is investing $500,000 in an Invest Canada North initiative at a large prospecting convention this spring.
Yukon MP Larry Bagnell made the announcement on behalf of the Canadian Northern Economic Development Agency (CanNor) in Vancouver over the weekend.
The two-day northern-focused event will take place within the Prospectors and Developers Association of Canada Convention in Toronto.
“This project demonstrates the clear strategic advantages of partnership and collaborations in the North among industry, governments, service sectors and Indigenous development corporations to promote investment in the territories,” Bagnell said.
“Increased investment in the North benefits all northerners.”
Invest Canada North will be hosted in partnership with the Yukon Mining Alliance, N.W.T. and Nunavut Chamber of Mines and the three territorial governments.
It will consist of “an exclusive networking reception” of food and entertainment inspired by northern culture and a forum that will inform attendees of the investment opportunities in the North.
There will also be the opportunity to interview exploration stakeholders: mineral and mining companies, government officials, Indigenous development corporations, and others.
The conference will kick off on March 1 with a premier networking reception. Attendees will be invited to try the Yukon’s Sourtoe Cocktail, and there will be an Inuit throat singing performance.
The single-day forum will take place on March 2. It will include a keynote presentation by Anmar Al-Joundi, the president of Agnico Eagle Mines.
The three territories will each host individual forums throughout the day.
Byron King, the editor of Agora Financial, and Andrijana Djokic, the CEO of the Na-Cho Nyak Dün Development Corp., will moderate the Yukon’s forum mid-morning.
There will be a fourth forum entitled “Environmental Social Governance” which will explore the future of mining in the changing environmental landscape.
In a press release issued this morning, Premier Sandy Silver expressed optimism for the conference’s potential for attracting mining investment Northward.
“Yukon is a great place to invest,” Silver said.
“This strategic initiative will raise the investment profile of Canada’s North on the global stage and advance our mineral industry.”
Anne Turner, the Yukon Mining Alliance’s executive director, said the conference will bring attention to the territory’s undiscovered resources.
“Invest Canada North will connect global investors with the significant untapped mineral potential, strong geopolitical stability and progressive Indigenous and community partnerships found in Canada’s North,” Turner said.
The Prospectors and Developers Association of Canada Convention will take place March 1-4.
Last year, the Toronto conference attracted 25,000 attendees from 132 countries.
London Community Foundation tackling lack of housing with $20-million investment – Global News
The London Community Foundation (LCF) is committing up to $20 million to addressing London’s affordable housing crisis.
The funds will be used to create a dedicated affordable housing fund of $17 million to $20 million to support the creation of more affordable housing options in the city.
“Adequate, safe and affordable housing should not be out of reach,” said LCF president and CEO Martha Powell.
“The shortage of affordable housing in our community is at a crisis point.”
London currently has a housing shortage of 3,000 units and more than 2,400 individuals and families accessing emergency shelters each year.
The fund is designed to offer flexible financing for community organizations interested in creating affordable housing.
According to the LCF, a major barrier to entering the affordable housing market is the high startup costs.
LCF is proposing low-interest, early-stage, flexible financing to help groups with initial startup costs like fund assessments, land acquisition, and planning and zoning expenses needed before the first phase of a project can be completed.
This idea builds upon the concept of LCF’s $10-million Social Impact Fund, which has helped to create 341 units of affordable housing.
In addition to the $20-million fund, the foundation announced the establishment of a Housing Action Committee, which will identify organizations that have an interest and capacity to help create affordable housing but who need more information and financial assistance to develop their plans.
“We hope to help those already providing housing solutions and those who may be able to help,” said committee chair John Nicholas.
© 2020 Global News, a division of Corus Entertainment Inc.
Kate Middleton and Prince William host glamorous reception for UK-Africa Investment Summit
William a speech at the event in which he spoke about the important relationship between the UK and Africa.
“The African continent holds a very special place in my heart,” the Duke of Cambridge said in a speech after arriving in the Music Room for the event. “It is the place my father took my brother and me shortly after our mother died.
“And when deciding where best to propose to Catherine I could think of no more fitting place than Kenya to get down on one knee.
“Throughout my life, I have been lucky enough to spend time in many other parts of Africa. I’m also honoured to be the Patron of the Royal African Society.
“And as Catherine and I have said to several of you here tonight, we hope to have the chance to visit many more countries in the future and share our mutual love of your continent with our children.”
Photo: © Yui Mok/AFP via Getty Images
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