Does Chimimport AD (BUL:CHIM) 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 Chimimport AD (BUL:CHIM) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Chimimport AD

What Is Chimimport AD's Net Debt?

As you can see below, Chimimport AD had лв262.3m of debt, at December 2021, which is about the same as the year before. You can click the chart for greater detail. But it also has лв4.42b in cash to offset that, meaning it has лв4.16b net cash.

A Look At Chimimport AD's Liabilities

We can see from the most recent balance sheet that Chimimport AD had liabilities of лв555.7m falling due within a year, and liabilities of лв9.30b due beyond that. Offsetting this, it had лв4.42b in cash and лв3.60b in receivables that were due within 12 months. So it has liabilities totalling лв1.84b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the лв162.1m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Chimimport AD would likely require a major re-capitalisation if it had to pay its creditors today. Chimimport AD boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total.

Importantly, Chimimport AD grew its EBIT by 58% 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 it is Chimimport AD's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Chimimport AD 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, Chimimport AD 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 Chimimport AD's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of лв4.16b. And it impressed us with free cash flow of лв452m, being 351% of its EBIT. So we don't have any problem with Chimimport AD's use of debt. 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. For example, we've discovered 3 warning signs for Chimimport AD (1 is significant!) that you should be aware of before investing here.

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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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.