Bucher Industries (VTX:BUCN) Seems To Use Debt Rather Sparingly

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.' 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. As with many other companies Bucher Industries AG (VTX:BUCN) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Bucher Industries

What Is Bucher Industries's Net Debt?

As you can see below, Bucher Industries had CHF169.5m of debt at June 2021, down from CHF247.2m a year prior. But on the other hand it also has CHF498.4m in cash, leading to a CHF328.9m net cash position.

How Healthy Is Bucher Industries' Balance Sheet?

The latest balance sheet data shows that Bucher Industries had liabilities of CHF879.3m due within a year, and liabilities of CHF228.4m falling due after that. Offsetting this, it had CHF498.4m in cash and CHF588.4m in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Bucher Industries' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CHF4.46b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Bucher Industries also has more cash than debt, so we're pretty confident it can manage its debt safely.

On top of that, Bucher Industries grew its EBIT by 34% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Bucher Industries'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Bucher Industries 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. Over the last three years, Bucher Industries recorded free cash flow worth a fulsome 85% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing up

We could understand if investors are concerned about Bucher Industries's liabilities, but we can be reassured by the fact it has has net cash of CHF328.9m. The cherry on top was that in converted 85% of that EBIT to free cash flow, bringing in CHF324m. So is Bucher Industries's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Bucher Industries, you may well want to click here to check an interactive graph of its earnings per share history.

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.

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.

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