Schoeller-Bleckmann Oilfield Equipment (VIE:SBO) Has A Pretty Healthy Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Schoeller-Bleckmann Oilfield Equipment

How Much Debt Does Schoeller-Bleckmann Oilfield Equipment Carry?

The image below, which you can click on for greater detail, shows that Schoeller-Bleckmann Oilfield Equipment had debt of €280.9m at the end of March 2022, a reduction from €304.3m over a year. But on the other hand it also has €293.2m in cash, leading to a €12.3m net cash position.

How Healthy Is Schoeller-Bleckmann Oilfield Equipment's Balance Sheet?

According to the last reported balance sheet, Schoeller-Bleckmann Oilfield Equipment had liabilities of €250.7m due within 12 months, and liabilities of €230.1m due beyond 12 months. Offsetting these obligations, it had cash of €293.2m as well as receivables valued at €116.6m due within 12 months. So its liabilities total €71.0m more than the combination of its cash and short-term receivables.

Given Schoeller-Bleckmann Oilfield Equipment has a market capitalization of €921.7m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Schoeller-Bleckmann Oilfield Equipment also has more cash than debt, so we're pretty confident it can manage its debt safely.

Although Schoeller-Bleckmann Oilfield Equipment made a loss at the EBIT level, last year, it was also good to see that it generated €29m in EBIT over the last twelve months. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Schoeller-Bleckmann Oilfield Equipment has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last year, Schoeller-Bleckmann Oilfield Equipment reported free cash flow worth 4.6% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Schoeller-Bleckmann Oilfield Equipment has €12.3m in net cash. So we are not troubled with Schoeller-Bleckmann Oilfield Equipment's debt use. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Schoeller-Bleckmann Oilfield Equipment .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.