Does Bobst Group (VTX:BOBNN) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Bobst Group SA (VTX:BOBNN) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Bobst Group

What Is Bobst Group's Debt?

As you can see below, Bobst Group had CHF341.0m of debt, at December 2021, which is about the same as the year before. You can click the chart for greater detail. However, it does have CHF494.9m in cash offsetting this, leading to net cash of CHF153.9m.

A Look At Bobst Group's Liabilities

Zooming in on the latest balance sheet data, we can see that Bobst Group had liabilities of CHF806.3m due within 12 months and liabilities of CHF440.6m due beyond that. On the other hand, it had cash of CHF494.9m and CHF364.2m worth of receivables due within a year. So its liabilities total CHF387.8m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Bobst Group is worth CHF1.12b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Bobst Group boasts net cash, so it's fair to say it does not have a heavy debt load!

Better yet, Bobst Group grew its EBIT by 502% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Bobst Group 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 company can only pay off debt with cold hard cash, not accounting profits. While Bobst Group 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. Over the last three years, Bobst Group actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing up

Although Bobst Group's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of CHF153.9m. And it impressed us with free cash flow of CHF147m, being 154% of its EBIT. So is Bobst Group's debt a risk? It doesn't seem so to us. 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. To that end, you should be aware of the 3 warning signs we've spotted with Bobst Group .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.