We Think Schoeller-Bleckmann Oilfield Equipment (VIE:SBO) Can Manage Its Debt With Ease

Warren Buffett famously said, '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. As with many other companies Schoeller-Bleckmann Oilfield Equipment Aktiengesellschaft (VIE:SBO) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. 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

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

As you can see below, Schoeller-Bleckmann Oilfield Equipment had €261.1m of debt at June 2022, down from €287.4m a year prior. But on the other hand it also has €274.9m in cash, leading to a €13.8m net cash position.

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 €293.3m falling due within a year, and liabilities of €189.3m due beyond that. Offsetting these obligations, it had cash of €274.9m as well as receivables valued at €141.4m due within 12 months. So it has liabilities totalling €66.3m more than its cash and near-term receivables, combined.

Given Schoeller-Bleckmann Oilfield Equipment has a market capitalization of €913.9m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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.

Even more impressive was the fact that Schoeller-Bleckmann Oilfield Equipment grew its EBIT by 2,098% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Schoeller-Bleckmann Oilfield Equipment's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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 three years, Schoeller-Bleckmann Oilfield Equipment actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

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 €13.8m in net cash. And it impressed us with free cash flow of -€1.3m, being 156% of its EBIT. So is Schoeller-Bleckmann Oilfield Equipment's debt a risk? It doesn't seem so to us. 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. We've identified 1 warning sign with Schoeller-Bleckmann Oilfield Equipment , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.