Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Points International Ltd. (TSE:PTS) makes use of debt. But should shareholders be worried about its use of debt?

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 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. 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.

View our latest analysis for Points International

How Much Debt Does Points International Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2020 Points International had US$40.0m of debt, an increase on none, over one year. However, it does have US$104.5m in cash offsetting this, leading to net cash of US$64.5m.

A Look At Points International's Liabilities

We can see from the most recent balance sheet that Points International had liabilities of US$70.8m falling due within a year, and liabilities of US$42.7m due beyond that. On the other hand, it had cash of US$104.5m and US$16.1m worth of receivables due within a year. So it can boast US$7.13m more liquid assets than total liabilities.

This short term liquidity is a sign that Points International could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Points International 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 Points International has boosted its EBIT by 71%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Points International's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.