We think PagSeguro Digital (NYSE:PAGS) can stay on top of its debt

Legendary fund manager Li Lu (whom Charlie Munger once backed) once said, “The greatest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. We note that PagSeguro Digital Ltd. (NYSE:PAGS) has debt on its balance sheet. But should shareholders worry about its use of debt?

When is debt dangerous?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business has is to look at its cash and debt together.

See our latest analysis for PagSeguro Digital

What is PagSeguro Digital’s debt?

You can click on the graph below for historical figures, but it shows that in March 2022, PagSeguro Digital had a debt of 1.30 billion reais, an increase of none, year on year. But he also has 1.48 billion reais in cash to compensate for this, which means he has a net cash of 180.0 million reais.

NYSE: PAGS Debt to Equity History July 14, 2022

A look at the responsibilities of PagSeguro Digital

We can see from the most recent balance sheet that PagSeguro Digital had liabilities of R$20.9 billion due within one year, and liabilities of R$2.09 billion due beyond. On the other hand, it had a cash position of R$1.48 billion and R$26.2 billion in receivables due within one year. So he actually has R$4.67 billion After liquid assets than total liabilities.

It’s good to see that PagSeguro Digital has plenty of cash on its balance sheet, suggesting conservative liability management. Given that he has easily sufficient short-term cash, we don’t think he will have any problems with his lenders. In short, PagSeguro Digital has clean cash, so it’s fair to say that it doesn’t have a lot of debt!

On top of that, we are pleased to report that PagSeguro Digital increased its EBIT by 75%, reducing the specter of future debt repayments. The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether PagSeguro Digital can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

Finally, while the taxman may love accounting profits, lenders only accept cash. PagSeguro Digital may have net cash on the balance sheet, but it’s always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its capacity. . to manage debt. Over the past three years, PagSeguro Digital has had negative free cash flow, in total. Debt is generally more expensive and almost always riskier in the hands of a company with negative free cash flow. Shareholders should hope for an improvement.


While we sympathize with investors who find debt a concern, you should keep in mind that PagSeguro Digital has a net cash position of R$180.0 million, as well as more liquid assets than liabilities. And it has impressed us with its 75% EBIT growth over the past year. We are therefore not concerned about PagSeguro Digital’s use of debt. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist outside of the balance sheet. To do this, you need to find out about the 3 warning signs we spotted with PagSeguro Digital (including 1 which is a little worrying).

In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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