Österreichische Post (VIE:POST) Has A Pretty Healthy Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Österreichische Post AG (VIE:POST) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Österreichische Post

What Is Österreichische Post's Net Debt?

The image below, which you can click on for greater detail, shows that Österreichische Post had debt of €2.60m at the end of September 2021, a reduction from €19.1m over a year. But it also has €176.7m in cash to offset that, meaning it has €174.1m net cash.

How Strong Is Österreichische Post's Balance Sheet?

The latest balance sheet data shows that Österreichische Post had liabilities of €1.49b due within a year, and liabilities of €674.8m falling due after that. On the other hand, it had cash of €176.7m and €393.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €1.59b.

This is a mountain of leverage relative to its market capitalization of €2.31b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe 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.

On top of that, Österreichische Post grew its EBIT by 52% over the last twelve months, and that growth will make it easier to handle its debt. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Österreichische Post 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. Happily for any shareholders, Österreichische Post actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

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 €174.1m. And it impressed us with free cash flow of €430m, being 184% of its EBIT. So is Österreichische Post's debt a risk? It doesn't seem so to us. 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. To that end, you should be aware of the 1 warning sign we've spotted with Österreichische Post .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.