Intuit (NASDAQ: INTU) has a rock solid balance sheet

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Legendary fund manager Li Lu (whom Charlie Munger supported) once said, “The biggest risk in investing is not price volatility, but the possibility that you will suffer a permanent loss of capital. So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. Above all, Intuit Inc. (NASDAQ: INTU) is in debt. But does this debt worry shareholders?

When is debt dangerous?

Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. The first step in examining a company’s debt levels is to consider its cash flow and debt together.

What is Intuit’s debt?

You can click on the graph below for historical numbers, but it shows that as of April 2021, Intuit had a debt of US $ 2.03 billion, an increase from US $ 398.0 million, over a year. However, his balance sheet shows that he has $ 4.12 billion in cash, so he actually has $ 2.08 billion in net cash.

NasdaqGS: INTU History of debt to equity August 22, 2021

How strong is Intuit’s balance sheet?

We can see from the most recent balance sheet that Intuit had liabilities of US $ 2.71 billion maturing within one year and liabilities of US $ 3.09 billion maturing within one year. -of the. In compensation for these obligations, it had cash of US $ 4.12 billion as well as receivables valued at US $ 651.0 million due within 12 months. It therefore has liabilities totaling US $ 1.04 billion more than its cash and short-term receivables combined.

This fact indicates that Intuit’s balance sheet looks quite strong, as its total liabilities roughly equal its liquid assets. So while it’s hard to imagine the US $ 149.0 billion company struggling to find the money, we still think it’s worth watching its balance sheet. Despite its notable liabilities, Intuit has a net cash flow, so it’s fair to say that it doesn’t have a lot of debt!

On top of that, we’re happy to report that Intuit has increased its EBIT by 68%, reducing the specter of future debt repayments. When analyzing debt levels, the balance sheet is the obvious starting point. But it is future profits, more than anything, that will determine Intuit’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, while the IRS may love accounting profits, lenders only accept hard cash. While Intuit has net cash on its balance sheet, it’s still worth looking at its ability to convert earnings before interest and taxes (EBIT) into free cash flow, to help us understand how fast it’s building ( or erodes) that cash balance. . Over the past three years, Intuit has actually generated more free cash flow than EBIT. This kind of solid money conversion makes us as excited as the crowd when the beat drops at a Daft Punk concert.

In summary

While it’s always a good idea to look at a company’s total liabilities, it’s very reassuring that Intuit has $ 2.08 billion in net cash. And it impressed us with free cash flow of US $ 2.9 billion, or 117% of its EBIT. So we don’t think Intuit’s use of debt is risky. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. For example, we discovered 3 warning signs for Intuit which you should know before investing here.

At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is 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 material. Simply Wall St has no position in the mentioned stocks.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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