Does Österreichische Post (VIE:POST) Have A Healthy Balance Sheet?

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. We can see that Österreichische Post AG (VIE:POST) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. 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, 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.

View our latest analysis for Österreichische Post

How Much Debt Does Österreichische Post Carry?

As you can see below, Österreichische Post had €28.2m of debt at June 2021, down from €75.9m a year prior. But it also has €175.4m in cash to offset that, meaning it has €147.2m net cash.

How Strong Is Österreichische Post's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Österreichische Post had liabilities of €1.49b due within 12 months and liabilities of €678.6m due beyond that. Offsetting this, it had €175.4m in cash and €428.9m in receivables that were due within 12 months. So its liabilities total €1.56b more than the combination of its cash and short-term receivables.

Österreichische Post has a market capitalization of €2.77b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Österreichische Post also has more cash than debt, so we're pretty confident it can manage its debt safely.

In addition to that, we're happy to report that Österreichische Post has boosted its EBIT by 58%, thus reducing the spectre of future debt repayments. 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 Österreichische Post can strengthen its balance sheet over time. 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 Österreichische Post 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, Österreichische Post 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

Although Österreichische Post's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €147.2m. And it impressed us with free cash flow of €530m, being 181% of its EBIT. So we don't think Österreichische Post's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Österreichische Post , and understanding them should be part of your investment process.

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.
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