Does lastminute.com (VTX:LMN) Have A Healthy Balance Sheet?

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 lastminute.com N.V. (VTX:LMN) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

We've discovered 3 warning signs about lastminute.com. View them for free.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

What Is lastminute.com's Debt?

You can click the graphic below for the historical numbers, but it shows that lastminute.com had €64.3m of debt in December 2024, down from €73.7m, one year before. However, it does have €69.2m in cash offsetting this, leading to net cash of €4.96m.

A Look At lastminute.com's Liabilities

According to the last reported balance sheet, lastminute.com had liabilities of €361.9m due within 12 months, and liabilities of €44.1m due beyond 12 months. Offsetting this, it had €69.2m in cash and €105.2m in receivables that were due within 12 months. So it has liabilities totalling €231.5m more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's €172.1m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. Given that lastminute.com has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total.

Check out our latest analysis for lastminute.com

In addition to that, we're happy to report that lastminute.com has boosted its EBIT by 76%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if lastminute.com 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While lastminute.com 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 two years, lastminute.com saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

Although lastminute.com's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €4.96m. And it impressed us with its EBIT growth of 76% over the last year. So while lastminute.com does not have a great balance sheet, it's certainly not too bad. 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. To that end, you should learn about the 3 warning signs we've spotted with lastminute.com (including 1 which is a bit unpleasant) .

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.