We Think Österreichische Post (VIE:POST) Can Stay On Top Of Its Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

Check out 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 €3.40m at the end of March 2021, a reduction from €39.2m over a year. However, it does have €231.7m in cash offsetting this, leading to net cash of €228.3m.

How Strong Is Österreichische Post's Balance Sheet?

According to the last reported balance sheet, Österreichische Post had liabilities of €1.37b due within 12 months, and liabilities of €692.4m due beyond 12 months. On the other hand, it had cash of €231.7m and €443.3m worth of receivables due within a year. So it has liabilities totalling €1.38b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Österreichische Post has a market capitalization of €2.72b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Österreichische Post boasts net cash, so it's fair to say it does not have a heavy debt load!

Fortunately, Österreichische Post grew its EBIT by 4.6% in the last year, making that debt load look even more manageable. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Österreichische Post'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 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

While Österreichische Post does have more liabilities than liquid assets, it also has net cash of €228.3m. The cherry on top was that in converted 151% of that EBIT to free cash flow, bringing in €590m. So we don't have any problem with Österreichische Post's use of debt. 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. Be aware that Österreichische Post is showing 1 warning sign in our investment analysis , you should know about...

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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