Straumann Holding (VTX:STMN) Has A Pretty Healthy Balance Sheet

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. Importantly, Straumann Holding AG (VTX:STMN) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Straumann Holding

What Is Straumann Holding's Debt?

As you can see below, Straumann Holding had CHF249.2m of debt at June 2024, down from CHF497.3m a year prior. But on the other hand it also has CHF333.7m in cash, leading to a CHF84.5m net cash position.

How Strong Is Straumann Holding's Balance Sheet?

According to the last reported balance sheet, Straumann Holding had liabilities of CHF723.0m due within 12 months, and liabilities of CHF784.1m due beyond 12 months. Offsetting these obligations, it had cash of CHF333.7m as well as receivables valued at CHF601.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CHF571.7m.

Since publicly traded Straumann Holding shares are worth a very impressive total of CHF20.5b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Straumann Holding boasts net cash, so it's fair to say it does not have a heavy debt load!

The good news is that Straumann Holding has increased its EBIT by 9.0% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Straumann Holding 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Straumann Holding may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Straumann Holding recorded free cash flow worth 50% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

We could understand if investors are concerned about Straumann Holding's liabilities, but we can be reassured by the fact it has has net cash of CHF84.5m. And it also grew its EBIT by 9.0% over the last year. So we don't think Straumann Holding's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Straumann Holding you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.