James, I appreciate you bringing up thought provoking ideas. Even though your research resolved the issue, your thoughts are always welcome. This has been a quiet thread. Continuing your thought...the company could be impacted by increasing short-term rates, so I reviewed the balane sheet. NO long-term debt. Current liabilities are essentially trade credit. So...no effect of increasing rates for now.
However, the company must fund long-term expansion somehow. Either through cash flow, adding capital (i.e. the PO that may return), or through debt. In the short-term they can do it through cash flow. The question is...if growth continues at this pace, will they have enough cash flow, or must they issue stock or debt? At the high multiples the stock was trading at, the PO made sense. With lower multiples now, debt begins to make more sense. Adding debt will cost more with higher interest rates, but these rates should be far below the growth rate, providing positive leverage. Just one guy's thoughts...do you have some other thoughts for the long-term cash requirements? |
