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.' 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. We can see that Bucher Industries AG (VTX:BUCN) does use debt in its business. But is this debt a concern to shareholders?
When Is Debt Dangerous?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.
See our latest analysis for Bucher Industries
How Much Debt Does Bucher Industries Carry?
As you can see below, Bucher Industries had CHF123.5m of debt, at December 2023, which is about the same as the year before. You can click the chart for greater detail. However, it does have CHF529.3m in cash offsetting this, leading to net cash of CHF405.8m.
How Strong Is Bucher Industries' Balance Sheet?
According to the last reported balance sheet, Bucher Industries had liabilities of CHF1.05b due within 12 months, and liabilities of CHF94.1m due beyond 12 months. Offsetting this, it had CHF529.3m in cash and CHF585.6m in receivables that were due within 12 months. So it has liabilities totalling CHF27.6m more than its cash and near-term receivables, combined.
Having regard to Bucher Industries' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CHF3.94b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Bucher Industries boasts net cash, so it's fair to say it does not have a heavy debt load!
But the other side of the story is that Bucher Industries saw its EBIT decline by 3.9% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. 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. Looking at the most recent three years, Bucher Industries recorded free cash flow of 37% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.
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 CHF405.8m. So we are not troubled with Bucher Industries's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Bucher Industries is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...
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.
About SWX:BUCN
Bucher Industries
Engages in the manufacture and sale of machinery, systems, and hydraulic components for harvesting, producing and packaging food products, and keeping roads and public spaces clean and safe in Asia, the Americas, Europe, and internationally.
Flawless balance sheet, undervalued and pays a dividend.