BELIMO Holding (VTX:BEAN) Could Easily Take On More Debt

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. Importantly, BELIMO Holding AG (VTX:BEAN) does carry debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does BELIMO Holding Carry?

As you can see below, at the end of December 2024, BELIMO Holding had CHF13.3m of debt, up from CHF4.22m a year ago. Click the image for more detail. However, its balance sheet shows it holds CHF137.2m in cash, so it actually has CHF123.9m net cash.

How Healthy Is BELIMO Holding's Balance Sheet?

We can see from the most recent balance sheet that BELIMO Holding had liabilities of CHF155.3m falling due within a year, and liabilities of CHF27.6m due beyond that. Offsetting these obligations, it had cash of CHF137.2m as well as receivables valued at CHF132.3m due within 12 months. So it can boast CHF86.5m more liquid assets than total liabilities.

This state of affairs indicates that BELIMO Holding's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CHF9.40b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, BELIMO Holding boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for BELIMO Holding

Also good is that BELIMO Holding grew its EBIT at 19% over the last year, further increasing its ability to manage debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if BELIMO 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While BELIMO 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, BELIMO Holding produced sturdy free cash flow equating to 62% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case BELIMO Holding has CHF123.9m in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 19% over the last year. So we don't think BELIMO Holding's use of debt is risky. 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. Case in point: We've spotted 1 warning sign for BELIMO Holding you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.