We Think BELIMO Holding (VTX:BEAN) Can Stay On Top Of Its Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 note that BELIMO Holding AG (VTX:BEAN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for BELIMO Holding

How Much Debt Does BELIMO Holding Carry?

The image below, which you can click on for greater detail, shows that at June 2024 BELIMO Holding had debt of CHF19.0m, up from CHF7.49m in one year. However, it does have CHF76.6m in cash offsetting this, leading to net cash of CHF57.6m.

A Look At BELIMO Holding's Liabilities

The latest balance sheet data shows that BELIMO Holding had liabilities of CHF146.0m due within a year, and liabilities of CHF21.5m falling due after that. Offsetting this, it had CHF76.6m in cash and CHF156.1m in receivables that were due within 12 months. So it actually has CHF65.1m more liquid assets than total liabilities.

Having regard to BELIMO Holding's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the CHF6.25b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that BELIMO Holding has more cash than debt is arguably a good indication that it can manage its debt safely.

While BELIMO Holding doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine BELIMO Holding's ability to maintain a healthy balance sheet going forward. 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 company can only pay off debt with cold hard cash, not accounting profits. BELIMO Holding may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. 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 we empathize with investors who find debt concerning, you should keep in mind that BELIMO Holding has net cash of CHF57.6m, as well as more liquid assets than liabilities. 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. However, not all investment risk resides within the balance sheet - far from it. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com