Sirma Group Holding AD (BUL:SGH) Seems To Use Debt Quite Sensibly

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Sirma Group Holding AD (BUL:SGH) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Sirma Group Holding AD's Net Debt?

As you can see below, at the end of June 2025, Sirma Group Holding AD had лв6.70m of debt, up from лв490.0k a year ago. Click the image for more detail. But it also has лв8.91m in cash to offset that, meaning it has лв2.21m net cash.

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

The latest balance sheet data shows that Sirma Group Holding AD had liabilities of лв21.5m due within a year, and liabilities of лв8.56m falling due after that. Offsetting these obligations, it had cash of лв8.91m as well as receivables valued at лв23.9m due within 12 months. So it actually has лв2.77m 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. Simply put, the fact that Sirma Group Holding AD has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Sirma Group Holding AD

It was also good to see that despite losing money on the EBIT line last year, Sirma Group Holding AD turned things around in the last 12 months, delivering and EBIT of лв3.2m. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Sirma Group Holding 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. 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. During the last year, Sirma Group Holding AD burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Sirma Group Holding AD has лв2.21m in net cash and a decent-looking balance sheet. So we don't have any problem with Sirma Group Holding AD's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. 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 (2 shouldn't be ignored) 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.