Does Sirma Group Holding AD (BUL:SGH) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Sirma Group Holding AD (BUL:SGH) does carry debt. But is this debt a concern to shareholders?

We've discovered 3 warning signs about Sirma Group Holding AD. View them for free.

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. 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.

What Is Sirma Group Holding AD's Debt?

As you can see below, at the end of December 2024, Sirma Group Holding AD had лв6.41m of debt, up from лв740.0k a year ago. Click the image for more detail. However, it does have лв15.5m in cash offsetting this, leading to net cash of лв9.11m.

How Healthy Is Sirma Group Holding AD's Balance Sheet?

The latest balance sheet data shows that Sirma Group Holding AD had liabilities of лв24.6m due within a year, and liabilities of лв9.16m falling due after that. Offsetting this, it had лв15.5m in cash and лв24.2m in receivables that were due within 12 months. So it can boast лв5.95m more liquid assets than total liabilities.

This short term liquidity is a sign that Sirma Group Holding AD could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Sirma Group Holding AD boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Sirma Group Holding AD

Although Sirma Group Holding AD made a loss at the EBIT level, last year, it was also good to see that it generated лв1.5m in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Sirma Group Holding AD will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Sirma Group Holding 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. Happily for any shareholders, Sirma Group Holding AD actually produced more free cash flow than EBIT over the last year. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Sirma Group Holding AD has net cash of лв9.11m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of лв3.5m, being 238% of its EBIT. So is Sirma Group Holding AD'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. For instance, we've identified 3 warning signs for Sirma Group Holding AD (1 is concerning) 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.