Is Bucher Industries (VTX:BUCN) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Bucher Industries AG (VTX:BUCN) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Bucher Industries

How Much Debt Does Bucher Industries Carry?

As you can see below, at the end of December 2021, Bucher Industries had CHF151.8m of debt, up from CHF143.3m a year ago. Click the image for more detail. But it also has CHF705.6m in cash to offset that, meaning it has CHF553.8m net cash.

How Strong Is Bucher Industries' Balance Sheet?

According to the last reported balance sheet, Bucher Industries had liabilities of CHF1.03b due within 12 months, and liabilities of CHF209.1m due beyond 12 months. On the other hand, it had cash of CHF705.6m and CHF497.7m worth of receivables due within a year. So it has liabilities totalling CHF32.3m more than its cash and near-term receivables, combined.

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 while it's hard to imagine that the CHF3.74b company is struggling for cash, we still think it's worth monitoring its 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 73% 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 ultimately the future profitability of the business will decide if Bucher Industries 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 Bucher Industries 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, Bucher Industries recorded free cash flow worth a fulsome 89% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

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 CHF553.8m. The cherry on top was that in converted 89% of that EBIT to free cash flow, bringing in CHF269m. So is Bucher Industries's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Bucher Industries that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.