Rieter Holding (VTX:RIEN) Has Debt But No Earnings; Should You Worry?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Rieter Holding AG (VTX:RIEN) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Rieter Holding

How Much Debt Does Rieter Holding Carry?

The image below, which you can click on for greater detail, shows that at December 2020 Rieter Holding had debt of CHF227.7m, up from CHF119.0m in one year. But on the other hand it also has CHF283.2m in cash, leading to a CHF55.5m net cash position.

A Look At Rieter Holding's Liabilities

According to the last reported balance sheet, Rieter Holding had liabilities of CHF428.3m due within 12 months, and liabilities of CHF184.3m due beyond 12 months. Offsetting this, it had CHF283.2m in cash and CHF68.5m in receivables that were due within 12 months. So its liabilities total CHF260.9m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Rieter Holding has a market capitalization of CHF772.7m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Rieter Holding also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Rieter Holding's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Rieter Holding had a loss before interest and tax, and actually shrunk its revenue by 25%, to CHF573m. To be frank that doesn't bode well.

So How Risky Is Rieter Holding?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Rieter Holding lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CHF78m and booked a CHF90m accounting loss. With only CHF55.5m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Rieter Holding has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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. 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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