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Is Xero (ASX:XRO) A Risky Investment? – Yahoo Finance

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital. So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Xero Limited (ASX:XRO) makes use of debt. But is this debt a concern to shareholders?” data-reactid=”27″>The external fund manager backed by Berkshire Hathaway’s Charlie Munger, Li Lu, makes no bones about it when he says ‘The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital. So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Xero Limited (ASX:XRO) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 together.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content=" View our latest analysis for Xero ” data-reactid=”30″> View our latest analysis for Xero

What Is Xero’s Debt?

As you can see below, at the end of September 2019, Xero had NZ$394.6m of debt, up from NZ$391 a year ago. Click the image for more detail. However, its balance sheet shows it holds NZ$496.0m in cash, so it actually has NZ$101.4m net cash.

ASX:XRO Historical Debt, January 6th 2020ASX:XRO Historical Debt, January 6th 2020

How Healthy Is Xero’s Balance Sheet?

According to the last reported balance sheet, Xero had liabilities of NZ$115.4m due within 12 months, and liabilities of NZ$564.9m due beyond 12 months. Offsetting these obligations, it had cash of NZ$496.0m as well as receivables valued at NZ$55.4m due within 12 months. So it has liabilities totalling NZ$128.9m more than its cash and near-term receivables, combined.

This state of affairs indicates that Xero’s balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it’s very unlikely that the NZ$11.7b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Xero also has more cash than debt, so we’re pretty confident it can manage its debt safely.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="We also note that Xero improved its EBIT from a last year's loss to a positive NZ$32m. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Xero can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.” data-reactid=”48″>We also note that Xero improved its EBIT from a last year’s loss to a positive NZ$32m. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Xero can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Xero has net cash on its balance sheet, it’s still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the most recent year, Xero recorded free cash flow worth 62% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing up

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="We could understand if investors are concerned about Xero's liabilities, but we can be reassured by the fact it has has net cash of NZ$101.4m. So we don't have any problem with Xero's use of debt. We'd be motivated to research the stock further if we found out that Xero insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.” data-reactid=”55″>We could understand if investors are concerned about Xero’s liabilities, but we can be reassured by the fact it has has net cash of NZ$101.4m. So we don’t have any problem with Xero’s use of debt. We’d be motivated to research the stock further if we found out that Xero insiders have bought shares recently. If you would too, then you’re in luck, since today we’re sharing our list of reported insider transactions for free.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.” data-reactid=”56″>If, after all that, you’re more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.” data-reactid=”57″>If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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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Organigram going all in on synthetic cannabinoid investment – Stockhouse

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Moncton NB-based Organigram Holdings Inc. (OGI) (TSE.OGI) announced Friday it is providing an additional $2.5 million investment in biotechnology company Hyasynth Biologicals to assist in furthering the production of biosynthetic cannabinoids.

OGI made an initial $5 million investment in Hyasynth in September 2018 and the Friday announcement represents the second of three tranches the cannabis producer has the right to make.

As part of the deal, Organigram has the right to purchase potentially all of Hyasynth’s cannabinoid production at a 10% discount to the wholesale market price for a 10-year period.

Several cannabis producers including Organigram, along with Toronto-based Cronos Group (TSX.CRON), have significantly invested in synthetic cannabinoid research as a way to help drive down the cost of chemical compounds contained within the cannabis plant…down to pennies per gram.

New to investing in Cannabis? Check out Stockhouse tips on How to Invest in Cannabis Stocks and some of our Top Cannabis Stocks.

For more of the latest info on Cannabis, check out the Cannabis Trending News hub on Stockhouse.

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Large federal investment announcement planned for Tecumseh – AM800 (iHeartRadio)

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An announcement on the “single largest federal investment in the history of the Town of Tecumseh” is planned for Monday morning.

Windsor-Tecumseh MPP Irek Kusmierczyk and Tecumseh Mayor Gary McNamara plan to reveal details at Tecumseh’s public works yard.

The news conference is planned for 9 a.m.

This is a developing story. More coming.

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Kotak Mahindra's Profit Beats Estimates on Investment Gains – BNN

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(Bloomberg) — Kotak Mahindra Bank Ltd., India’s third-largest lender by market value, posted second-quarter profit that unexpectedly grew as income from investments rose and expenses dropped.

Net income climbed 27% to 21.8 billion rupees ($295 million) for the three months ended Sept. 30 from a year earlier, the Mumbai-based bank said in a filing Monday. That beat expectations from analysts who expected a profit of 13.4 billion rupees, according to data compiled by Bloomberg.

The lender said it set aside 3.7 billion rupees in provisions during the quarter, compared with 4.1 billion rupees a year earlier. Indian lenders — like others globally — have been stepping up buffers to protect themselves from the financial fallout of the coronavirus pandemic.

Still, Kotak Mahindra’s gross bad loan ratio fell slightly to 2.55% at the end of September, compared with 2.7% three months earlier. The ratio would have stayed at that level if India’s top court hadn’t allowed lenders to continue with a relaxation of rules around bad debt recognition, it said.

Kotak Mahindra, backed by Asia’s richest banker Uday Kotak, is exploring the takeover of smaller Indian rival IndusInd Bank Ltd., people with knowledge of the matter said this week. A deal would cement Kotak Mahindra’s position as one of India’s leading private banks, boosting its assets by about 83%.

A spokesman for Kotak Mahindra declined to comment on the takeover plans, while a representative for IndusInd denied the report.

Kotak Mahindra boosted its balance sheet earlier this year by securing nearly $1 billion in a share sale.

(Updates with details from third paragraph.)

©2020 Bloomberg L.P.

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