Is Zwahlen & Mayr (VTX:ZWM) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Zwahlen & Mayr SA (VTX:ZWM) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. 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.

View our latest analysis for Zwahlen & Mayr

What Is Zwahlen & Mayr's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2020 Zwahlen & Mayr had CHF2.10m of debt, an increase on CHF1.90m, over one year. However, its balance sheet shows it holds CHF5.15m in cash, so it actually has CHF3.05m net cash.

A Look At Zwahlen & Mayr's Liabilities

Zooming in on the latest balance sheet data, we can see that Zwahlen & Mayr had liabilities of CHF9.16m due within 12 months and liabilities of CHF5.44m due beyond that. Offsetting this, it had CHF5.15m in cash and CHF10.4m in receivables that were due within 12 months. So it actually has CHF937.0k more liquid assets than total liabilities.

This surplus suggests that Zwahlen & Mayr has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Zwahlen & Mayr boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Zwahlen & Mayr will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Zwahlen & Mayr made a loss at the EBIT level, and saw its revenue drop to CHF43m, which is a fall of 25%. To be frank that doesn't bode well.

So How Risky Is Zwahlen & Mayr?

While Zwahlen & Mayr lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CHF4.7m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Zwahlen & Mayr is showing 1 warning sign in our investment analysis , 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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