We Think Zur Rose Group (VTX:ROSE) Has A Fair Chunk Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Zur Rose Group AG (VTX:ROSE) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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 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.

See our latest analysis for Zur Rose Group

What Is Zur Rose Group's Debt?

The chart below, which you can click on for greater detail, shows that Zur Rose Group had CHF484.7m in debt in June 2021; about the same as the year before. On the flip side, it has CHF252.0m in cash leading to net debt of about CHF232.7m.

How Healthy Is Zur Rose Group's Balance Sheet?

The latest balance sheet data shows that Zur Rose Group had liabilities of CHF190.7m due within a year, and liabilities of CHF594.6m falling due after that. Offsetting these obligations, it had cash of CHF252.0m as well as receivables valued at CHF140.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CHF393.2m.

Given Zur Rose Group has a market capitalization of CHF3.21b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Zur Rose Group'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.

In the last year Zur Rose Group wasn't profitable at an EBIT level, but managed to grow its revenue by 17%, to CHF1.6b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Zur Rose Group produced an earnings before interest and tax (EBIT) loss. Indeed, it lost CHF150m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through CHF116m of cash over the last year. So suffice it to say we do consider the stock to be risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Zur Rose Group's profit, revenue, and operating cashflow have changed over the last few years.

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.
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