Is Schoeller-Bleckmann Oilfield Equipment (VIE:SBO) Using Debt Sensibly?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Schoeller-Bleckmann Oilfield Equipment Aktiengesellschaft (VIE:SBO) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Schoeller-Bleckmann Oilfield Equipment

What Is Schoeller-Bleckmann Oilfield Equipment's Net Debt?

As you can see below, at the end of June 2021, Schoeller-Bleckmann Oilfield Equipment had €287.4m of debt, up from €251.3m a year ago. Click the image for more detail. But it also has €307.5m in cash to offset that, meaning it has €20.1m net cash.

A Look At Schoeller-Bleckmann Oilfield Equipment's Liabilities

We can see from the most recent balance sheet that Schoeller-Bleckmann Oilfield Equipment had liabilities of €232.5m falling due within a year, and liabilities of €248.7m due beyond that. On the other hand, it had cash of €307.5m and €77.0m worth of receivables due within a year. So it has liabilities totalling €96.7m more than its cash and near-term receivables, combined.

Since publicly traded Schoeller-Bleckmann Oilfield Equipment shares are worth a total of €535.6m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Schoeller-Bleckmann Oilfield Equipment boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Schoeller-Bleckmann Oilfield Equipment can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Schoeller-Bleckmann Oilfield Equipment made a loss at the EBIT level, and saw its revenue drop to €236m, which is a fall of 40%. That makes us nervous, to say the least.

So How Risky Is Schoeller-Bleckmann Oilfield Equipment?

While Schoeller-Bleckmann Oilfield Equipment lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow €40m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. For riskier companies like Schoeller-Bleckmann Oilfield Equipment I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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