Is Flughafen Wien (VIE:FLU) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. As with many other companies Flughafen Wien Aktiengesellschaft (VIE:FLU) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Flughafen Wien

How Much Debt Does Flughafen Wien Carry?

The image below, which you can click on for greater detail, shows that Flughafen Wien had debt of €200.0m at the end of June 2023, a reduction from €225.0m over a year. But on the other hand it also has €501.0m in cash, leading to a €301.0m net cash position.

A Look At Flughafen Wien's Liabilities

We can see from the most recent balance sheet that Flughafen Wien had liabilities of €323.1m falling due within a year, and liabilities of €461.3m due beyond that. On the other hand, it had cash of €501.0m and €78.5m worth of receivables due within a year. So it has liabilities totalling €204.8m more than its cash and near-term receivables, combined.

Given Flughafen Wien has a market capitalization of €3.94b, 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, Flughafen Wien also has more cash than debt, so we're pretty confident it can manage its debt safely.

On top of that, Flughafen Wien grew its EBIT by 97% 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 it is future earnings, more than anything, that will determine Flughafen Wien's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Flughafen Wien 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 two years, Flughafen Wien actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about Flughafen Wien's liabilities, but we can be reassured by the fact it has has net cash of €301.0m. The cherry on top was that in converted 175% of that EBIT to free cash flow, bringing in €385m. So we don't think Flughafen Wien's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Flughafen Wien, you may well want to click here to check an interactive graph of its earnings per share history.

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.