Is Burckhardt Compression Holding (VTX:BCHN) Using Too Much Debt?

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 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. Importantly, Burckhardt Compression Holding AG (VTX:BCHN) does carry debt. But the more important question is: how much risk is that debt creating?

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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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Burckhardt Compression Holding's Debt?

You can click the graphic below for the historical numbers, but it shows that Burckhardt Compression Holding had CHF162.8m of debt in March 2025, down from CHF182.7m, one year before. However, it does have CHF222.9m in cash offsetting this, leading to net cash of CHF60.1m.

How Healthy Is Burckhardt Compression Holding's Balance Sheet?

According to the last reported balance sheet, Burckhardt Compression Holding had liabilities of CHF639.1m due within 12 months, and liabilities of CHF188.0m due beyond 12 months. Offsetting these obligations, it had cash of CHF222.9m as well as receivables valued at CHF404.2m due within 12 months. So its liabilities total CHF200.1m more than the combination of its cash and short-term receivables.

Since publicly traded Burckhardt Compression Holding shares are worth a total of CHF2.19b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Burckhardt Compression Holding also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Burckhardt Compression Holding

Another good sign is that Burckhardt Compression Holding has been able to increase its EBIT by 26% in twelve months, making it easier to pay down debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Burckhardt Compression Holding can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Burckhardt Compression Holding 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 three years, Burckhardt Compression Holding produced sturdy free cash flow equating to 75% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Burckhardt Compression Holding has CHF60.1m in net cash. And it impressed us with free cash flow of CHF187m, being 75% of its EBIT. So is Burckhardt Compression Holding's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Burckhardt Compression Holding .

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.