Does Atturra (ASX:ATA) Have A Healthy Balance Sheet?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Atturra Limited (ASX:ATA) does use debt in its business. But should shareholders be worried about its use of debt?

Our free stock report includes 1 warning sign investors should be aware of before investing in Atturra. Read for free now.

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Atturra's Debt?

The image below, which you can click on for greater detail, shows that Atturra had debt of AU$18.8m at the end of December 2024, a reduction from AU$22.8m over a year. However, its balance sheet shows it holds AU$98.4m in cash, so it actually has AU$79.6m net cash.

How Strong Is Atturra's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Atturra had liabilities of AU$104.8m due within 12 months and liabilities of AU$46.1m due beyond that. Offsetting these obligations, it had cash of AU$98.4m as well as receivables valued at AU$74.9m due within 12 months. So it can boast AU$22.5m more liquid assets than total liabilities.

This surplus suggests that Atturra has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Atturra boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Atturra

On top of that, Atturra grew its EBIT by 31% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Atturra 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. Atturra 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. During the last three years, Atturra generated free cash flow amounting to a very robust 81% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Atturra has net cash of AU$79.6m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of AU$12m, being 81% of its EBIT. So is Atturra's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - Atturra has 1 warning sign we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.