These 4 Measures Indicate That Flughafen Wien (VIE:FLU) Is Using Debt Reasonably Well

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Flughafen Wien Aktiengesellschaft (VIE:FLU) does use debt in its business. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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?

As you can see below, Flughafen Wien had €279.8m of debt at September 2022, down from €330.9m a year prior. But on the other hand it also has €331.3m in cash, leading to a €51.5m 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 €294.9m falling due within a year, and liabilities of €451.6m due beyond that. On the other hand, it had cash of €331.3m and €117.5m worth of receivables due within a year. So it has liabilities totalling €297.7m more than its cash and near-term receivables, combined.

Since publicly traded Flughafen Wien shares are worth a total of €2.81b, 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. 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.

Although Flughafen Wien made a loss at the EBIT level, last year, it was also good to see that it generated €81m in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. 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, a company can only pay off debt with cold hard cash, not accounting profits. 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. Happily for any shareholders, Flughafen Wien actually produced more free cash flow than EBIT over the last year. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

Although Flughafen Wien's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €51.5m. And it impressed us with free cash flow of €241m, being 296% of its EBIT. So we don't think Flughafen Wien's use of debt is risky. 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. For instance, we've identified 1 warning sign for Flughafen Wien that you should be aware of.

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.