Does Zarneni Hrani Bulgaria AD (BUL:ZHBG) Have A 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. We can see that Zarneni Hrani Bulgaria AD (BUL:ZHBG) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Zarneni Hrani Bulgaria AD

How Much Debt Does Zarneni Hrani Bulgaria AD Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 Zarneni Hrani Bulgaria AD had лв48.8m of debt, an increase on лв33.6m, over one year. But on the other hand it also has лв50.0m in cash, leading to a лв1.25m net cash position.

How Healthy Is Zarneni Hrani Bulgaria AD's Balance Sheet?

We can see from the most recent balance sheet that Zarneni Hrani Bulgaria AD had liabilities of лв47.3m falling due within a year, and liabilities of лв57.1m due beyond that. On the other hand, it had cash of лв50.0m and лв71.9m worth of receivables due within a year. So it actually has лв17.6m more liquid assets than total liabilities.

This excess liquidity is a great indication that Zarneni Hrani Bulgaria AD's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Zarneni Hrani Bulgaria AD has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Zarneni Hrani Bulgaria 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.

In the last year Zarneni Hrani Bulgaria AD wasn't profitable at an EBIT level, but managed to grow its revenue by 16%, to лв73m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Zarneni Hrani Bulgaria AD?

While Zarneni Hrani Bulgaria AD lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of лв6.0m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. The next few years will be important as the business matures. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Zarneni Hrani Bulgaria AD you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.