Rotten Tomato Stocks
No Result
View All Result
  • News
    US Stocks Slip, on Track for 4th Monthly Loss This Year

    US Stocks Slip, on Track for 4th Monthly Loss This Year

    US Consumer Confidence Slumps to Lowest Level in 16 Months

    US Consumer Confidence Slumps to Lowest Level in 16 Months

    U.S. stock indexes book biggest daily drop in over a week despite strong economic data

    U.S. stock indexes book biggest daily drop in over a week despite strong economic data

    Panera Bread Product Recalled

    Panera Bread Product Recalled

  • NYSE
    Thor Industries Shares Decline 2.7% After Expectations of Muted Short-Term Demand

    Thor Industries Shares Decline 2.7% After Expectations of Muted Short-Term Demand

    Hanesbrands Inc. stock falls Wednesday, underperforms market

    Hanesbrands Inc. stock falls Wednesday, underperforms market

    Digital Realty Trust (NYSE:DLR) Shares Down 7.3% on Insider Selling

    Digital Realty Trust (NYSE:DLR) Shares Down 7.3% on Insider Selling

    NIO shares extend losses as Chinese EV maker denies short-seller report

    NIO shares extend losses as Chinese EV maker denies short-seller report

  • NASDAQ
    Duck Creek Tech Shares Decline 12% on Wider 3Q Loss, Lower FY22 Rev View

    Duck Creek Tech Shares Decline 12% on Wider 3Q Loss, Lower FY22 Rev View

    Plug Power Inc. stock falls Wednesday, underperforms market

    Plug Power Inc. stock falls Wednesday, underperforms market

    Nova (NASDAQ:NVMI) Hits New 52-Week Low on Analyst Downgrade

    Nova (NASDAQ:NVMI) Hits New 52-Week Low on Analyst Downgrade

    Tesla stock lower ahead of second-quarter sales

    Tesla stock lower ahead of second-quarter sales

  • OTC
    China Eastern Airlines 3Q Loss Widens on Low Travel Demand

    China Eastern Airlines 3Q Loss Widens on Low Travel Demand

    Corus Entertainment 4Q Profit Falls

    Corus Entertainment 4Q Profit Falls

    Nintendo Co. Ltd. ADR falls Monday, still outperforms market

    Nintendo Co. Ltd. ADR falls Monday, still outperforms market

    Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

    Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

  • TSX
    US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

    US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

    S&P/TSX composite falls on drop in materials sector, loonie tops 81 cents US

    S&P/TSX composite falls on drop in materials sector, loonie tops 81 cents US

    Bitcoin Is Falling: Should You Buy the Dip?

    Bitcoin Is Falling: Should You Buy the Dip?

    CN Rail Stock Is So Undervalued That it’s Absurd

    CN Rail Stock Is So Undervalued That it’s Absurd

  • News
    US Stocks Slip, on Track for 4th Monthly Loss This Year

    US Stocks Slip, on Track for 4th Monthly Loss This Year

    US Consumer Confidence Slumps to Lowest Level in 16 Months

    US Consumer Confidence Slumps to Lowest Level in 16 Months

    U.S. stock indexes book biggest daily drop in over a week despite strong economic data

    U.S. stock indexes book biggest daily drop in over a week despite strong economic data

    Panera Bread Product Recalled

    Panera Bread Product Recalled

  • NYSE
    Thor Industries Shares Decline 2.7% After Expectations of Muted Short-Term Demand

    Thor Industries Shares Decline 2.7% After Expectations of Muted Short-Term Demand

    Hanesbrands Inc. stock falls Wednesday, underperforms market

    Hanesbrands Inc. stock falls Wednesday, underperforms market

    Digital Realty Trust (NYSE:DLR) Shares Down 7.3% on Insider Selling

    Digital Realty Trust (NYSE:DLR) Shares Down 7.3% on Insider Selling

    NIO shares extend losses as Chinese EV maker denies short-seller report

    NIO shares extend losses as Chinese EV maker denies short-seller report

  • NASDAQ
    Duck Creek Tech Shares Decline 12% on Wider 3Q Loss, Lower FY22 Rev View

    Duck Creek Tech Shares Decline 12% on Wider 3Q Loss, Lower FY22 Rev View

    Plug Power Inc. stock falls Wednesday, underperforms market

    Plug Power Inc. stock falls Wednesday, underperforms market

    Nova (NASDAQ:NVMI) Hits New 52-Week Low on Analyst Downgrade

    Nova (NASDAQ:NVMI) Hits New 52-Week Low on Analyst Downgrade

    Tesla stock lower ahead of second-quarter sales

    Tesla stock lower ahead of second-quarter sales

  • OTC
    China Eastern Airlines 3Q Loss Widens on Low Travel Demand

    China Eastern Airlines 3Q Loss Widens on Low Travel Demand

    Corus Entertainment 4Q Profit Falls

    Corus Entertainment 4Q Profit Falls

    Nintendo Co. Ltd. ADR falls Monday, still outperforms market

    Nintendo Co. Ltd. ADR falls Monday, still outperforms market

    Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

    Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

  • TSX
    US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

    US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

    S&P/TSX composite falls on drop in materials sector, loonie tops 81 cents US

    S&P/TSX composite falls on drop in materials sector, loonie tops 81 cents US

    Bitcoin Is Falling: Should You Buy the Dip?

    Bitcoin Is Falling: Should You Buy the Dip?

    CN Rail Stock Is So Undervalued That it’s Absurd

    CN Rail Stock Is So Undervalued That it’s Absurd

No Result
View All Result
Rotten Tomato Stocks
No Result
View All Result

Is Howmet Aerospace (NYSE:HWM) Using Too Much Debt?

Editorial Staff by Editorial Staff
August 10, 2021
0
Is Howmet Aerospace (NYSE:HWM) Using Too Much Debt?

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.’ When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Howmet Aerospace Inc. (NYSE:HWM) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

How Much Debt Does Howmet Aerospace Carry?

The image below, which you can click on for greater detail, shows that Howmet Aerospace had debt of US$4.24b at the end of June 2021, a reduction from US$5.09b over a year. However, it also had US$715.0m in cash, and so its net debt is US$3.53b.

debt-equity-history-analysis
NYSE:HWM Debt to Equity History August 9th 2021

A Look At Howmet Aerospace’s Liabilities

Zooming in on the latest balance sheet data, we can see that Howmet Aerospace had liabilities of US$1.23b due within 12 months and liabilities of US$5.55b due beyond that. On the other hand, it had cash of US$715.0m and US$416.0m worth of receivables due within a year. So its liabilities total US$5.65b more than the combination of its cash and short-term receivables.

Howmet Aerospace has a very large market capitalization of US$13.6b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt.

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

While Howmet Aerospace’s debt to EBITDA ratio (3.3) suggests that it uses some debt, its interest cover is very weak, at 2.4, suggesting high leverage. It seems clear that the cost of borrowing money is negatively impacting returns for shareholders, of late. Even worse, Howmet Aerospace saw its EBIT tank 32% over the last 12 months. If earnings keep going like that over the long term, it has a snowball’s chance in hell of paying off that debt. 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 Howmet Aerospace can strengthen its balance sheet over time.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. So we always check how much of that EBIT is translated into free cash flow. Considering the last three years, Howmet Aerospace actually recorded a cash outflow, overall. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.

Our View

On the face of it, Howmet Aerospace’s conversion of EBIT to free cash flow left us tentative about the stock, and its EBIT growth rate was no more enticing than the one empty restaurant on the busiest night of the year. Having said that, its ability to handle its total liabilities isn’t such a worry. Overall, it seems to us that Howmet Aerospace’s balance sheet is really quite a risk to the business. So we’re almost as wary of this stock as a hungry kitten is about falling into its owner’s fish pond: once bitten, twice shy, as they say. The balance sheet is clearly the area to focus on when you are analysing debt.

Related Posts

Thor Industries Shares Decline 2.7% After Expectations of Muted Short-Term Demand
NYSE

Thor Industries Shares Decline 2.7% After Expectations of Muted Short-Term Demand

June 29, 2022
Hanesbrands Inc. stock falls Wednesday, underperforms market
NYSE

Hanesbrands Inc. stock falls Wednesday, underperforms market

June 29, 2022
Digital Realty Trust (NYSE:DLR) Shares Down 7.3% on Insider Selling
NYSE

Digital Realty Trust (NYSE:DLR) Shares Down 7.3% on Insider Selling

June 29, 2022
NIO shares extend losses as Chinese EV maker denies short-seller report
NYSE

NIO shares extend losses as Chinese EV maker denies short-seller report

June 29, 2022
Load More
Next Post
These 4 Measures Indicate That Estée Lauder Companies (NYSE:EL) Is Using Debt Reasonably Well

These 4 Measures Indicate That Estée Lauder Companies (NYSE:EL) Is Using Debt Reasonably Well

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

I agree to the Terms & Conditions and Privacy Policy.

POPULAR NEWS

CNH Industrial (NYSE:CNHI) Use Of Debt Could Be Considered Risky

CNH Industrial (NYSE:CNHI) Use Of Debt Could Be Considered Risky

April 14, 2021
10 Warning Signs That Should Tell You “This Stock is in Trouble”

10 Warning Signs That Should Tell You “This Stock is in Trouble”

November 11, 2019
Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

September 14, 2021
CN Rail Stock Is So Undervalued That it’s Absurd

CN Rail Stock Is So Undervalued That it’s Absurd

May 2, 2021
Bitcoin Is Falling: Should You Buy the Dip?

Bitcoin Is Falling: Should You Buy the Dip?

May 3, 2021

EDITOR'S PICK

Ryanair forecasts widening loss

Ryanair forecasts widening loss

April 4, 2022
Red Eléctrica Corporación (BME:REE) Takes On Some Risk With Its Use Of Debt

Red Eléctrica Corporación (BME:REE) Takes On Some Risk With Its Use Of Debt

April 16, 2021
‘Risks of a market bubble are growing,’ warns Morgan Stanley

‘Risks of a market bubble are growing,’ warns Morgan Stanley

November 8, 2021
Apple stock swings to a loss after executives warn of billions in added costs

Apple stock swings to a loss after executives warn of billions in added costs

April 29, 2022

Stay Updated

Get breaking news delivered straight into your inbox

Nothing in this publication should be considered as personalized financial advice. We are not licensed under securities laws to address your particular financial situation. No communication by our employees to you should be deemed as personalized financial advice. Please consult a licensed financial advisor before making any investment decision. This is a paid advertisement and is neither an offer nor recommendation to buy or sell any security. We hold no investment licenses and are thus neither licensed nor qualified to provide investment advice. The content in this report or email is not provided to any individual with a view toward their individual circumstances. Rotten Tomato stocks is a wholly-owned subsidiary of Grainne Capital Limited.
While all information is believed to be reliable, it is not guaranteed by us to be accurate. Individuals should assume that all information contained in our newsletter is not trustworthy unless verified by their own independent research. Also, because events and circumstances frequently do not occur as expected, there will likely be differences between the any predictions and actual results. Always consult a licensed investment professional before making any investment decision. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment.

Rotten Tomato Stocks cover the companies and markets that are declining, failing or headed for disaster. We help investors spot the down tends and recognize when something smells rotten.

RECENT POSTS

US Stocks Slip, on Track for 4th Monthly Loss This Year

Thor Industries Shares Decline 2.7% After Expectations of Muted Short-Term Demand

Hanesbrands Inc. stock falls Wednesday, underperforms market

POPULAR POSTS

Digital Realty Trust (NYSE:DLR) Shares Down 7.3% on Insider Selling

Duck Creek Tech Shares Decline 12% on Wider 3Q Loss, Lower FY22 Rev View

Plug Power Inc. stock falls Wednesday, underperforms market

© Copyright 2021 RottenTomatoStocks. All Rights Reserved 

Disclaimer | Privacy Policy

No Result
View All Result
  • HOME
  • NEWS
  • NYSE
  • NASDAQ
  • OTC
  • TSX

© 2021 RottenTomatoStocks.com

error: Content is protected !!
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.