Schoeller-Bleckmann Oilfield Equipment (VIE:SBO) Has A Rock Solid 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. We note that Schoeller-Bleckmann Oilfield Equipment Aktiengesellschaft (VIE:SBO) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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

How Much Debt Does Schoeller-Bleckmann Oilfield Equipment Carry?

As you can see below, Schoeller-Bleckmann Oilfield Equipment had €242.4m of debt at June 2023, down from €261.1m a year prior. However, its balance sheet shows it holds €266.8m in cash, so it actually has €24.5m net cash.

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

We can see from the most recent balance sheet that Schoeller-Bleckmann Oilfield Equipment had liabilities of €290.6m falling due within a year, and liabilities of €181.6m due beyond that. Offsetting these obligations, it had cash of €266.8m as well as receivables valued at €131.4m due within 12 months. So its liabilities total €74.0m more than the combination of its cash and short-term receivables.

Since publicly traded Schoeller-Bleckmann Oilfield Equipment shares are worth a total of €770.7m, 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!

On top of that, Schoeller-Bleckmann Oilfield Equipment grew its EBIT by 93% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Schoeller-Bleckmann Oilfield Equipment may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Schoeller-Bleckmann Oilfield Equipment recorded free cash flow worth 57% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

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 €24.5m in net cash. And we liked the look of last year's 93% year-on-year EBIT growth. So is Schoeller-Bleckmann Oilfield Equipment's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Schoeller-Bleckmann Oilfield Equipment is showing 1 warning sign in our investment analysis , you should know about...

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.

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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.