Health Check: How Prudently Does Autoneum Holding (VTX:AUTN) Use Debt?

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 Autoneum Holding AG (VTX:AUTN) does use debt in its business. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Autoneum Holding

How Much Debt Does Autoneum Holding Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2022 Autoneum Holding had CHF375.8m of debt, an increase on CHF355.0m, over one year. However, it does have CHF123.6m in cash offsetting this, leading to net debt of about CHF252.2m.

How Healthy Is Autoneum Holding's Balance Sheet?

The latest balance sheet data shows that Autoneum Holding had liabilities of CHF497.9m due within a year, and liabilities of CHF542.0m falling due after that. Offsetting these obligations, it had cash of CHF123.6m as well as receivables valued at CHF336.8m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CHF579.5m.

This deficit is considerable relative to its market capitalization of CHF684.6m, so it does suggest shareholders should keep an eye on Autoneum Holding's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Autoneum Holding's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Autoneum Holding reported revenue of CHF1.8b, which is a gain of 6.1%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Autoneum Holding produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at CHF11m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. For example, we would not want to see a repeat of last year's loss of CHF2.3m. So in short it's a really risky stock. 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 example, we've discovered 1 warning sign for Autoneum Holding that you should be aware of before investing here.

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.