Is International Game Technology in Financial Hot Water?

When considering investment in stocks, it is important to acknowledge the inherent level of risk. As Warren Buffet once expressed, volatility does not necessarily equate to a high level of risk. A critical factor for investors to weigh is the level of debt carried by a company, such as in the case of International Game Technology PLC (NYSE:IGT). The question that arises for shareholders is whether this debt should raise concerns.

Debt can be leveraged as a tool for facilitating business growth. However, failure to meet debt obligations can lead to severe repercussions, such as bankruptcy or share dilution in the event of forced capital raising at reduced valuations. Nevertheless, debt can also be advantageous for companies seeking capital to invest in high-returning growth opportunities. It is vital to assess a company’s cash and debt in conjunction to form a comprehensive understanding of its financial standing.

As of the end of September 2023, International Game Technology held a total debt of US$5.81 billion, alongside a cash reserve of US$558.0 million, resulting in a net debt of approximately US$5.25 billion. The company’s balance sheet reveals liabilities of US$1.87 billion due within 12 months, and US$6.63 billion due beyond that, while holding US$558.0 million in cash and US$786.0 million in receivables due within a year, creating a deficit of US$7.15 billion when comparing liabilities to the sum of cash and near-term receivables.

When assessing International Game Technology’s debt relative to its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) in relation to its interest expense, it is observed that the company’s debt is 3.6 times its EBITDA, and its EBIT covers its interest expense 3.5 times over. This indicates that the debt levels, while substantial, are not alarming. Additionally, the company’s ability to manage its debt has been reinforced by an 11% growth in its EBIT over the last 12 months, a positive indicator. It is crucial to acknowledge that future earnings will play a pivotal role in determining its ability to sustain a healthy balance sheet in the future.

In conclusion, International Game Technology is assuming certain risks through its utilization of debt. While debt can potentially enhance returns, the company may already possess an adequate level of leverage. Investment always carries inherent risks, and the balance sheet constitutes just one facet for consideration. It is imperative to thoroughly assess all factors prior to making investment decisions. For investors seeking alternative options, there are growth stocks available with no net debt.

Conducting a comprehensive analysis of any potential investment is essential, encompassing factors such as fair value estimates, risks and warnings, dividends, insider transactions, and financial health. Investing inherently involves risks, and seeking personalized advice before making any investment decisions is advisable. Staying well-informed and considering all possibilities before committing to any financial actions is paramount. I am available for any concerns or queries that may arise.