Health Check: How Prudently Does Meyer Burger Technology (VTX:MBTN) Use Debt?

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.' 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. Importantly, Meyer Burger Technology AG (VTX:MBTN) does carry debt. But the more important question is: how much risk is that debt creating?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Meyer Burger Technology

What Is Meyer Burger Technology's Debt?

As you can see below, at the end of December 2022, Meyer Burger Technology had CHF220.8m of debt, up from CHF181.2m a year ago. Click the image for more detail. However, it does have CHF293.2m in cash offsetting this, leading to net cash of CHF72.3m.

A Look At Meyer Burger Technology's Liabilities

According to the last reported balance sheet, Meyer Burger Technology had liabilities of CHF89.5m due within 12 months, and liabilities of CHF202.1m due beyond 12 months. Offsetting these obligations, it had cash of CHF293.2m as well as receivables valued at CHF60.4m due within 12 months. So it can boast CHF62.0m more liquid assets than total liabilities.

This short term liquidity is a sign that Meyer Burger Technology could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Meyer Burger Technology boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Meyer Burger Technology can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Meyer Burger Technology wasn't profitable at an EBIT level, but managed to grow its revenue by 292%, to CHF156m. That's virtually the hole-in-one of revenue growth!

So How Risky Is Meyer Burger Technology?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Meyer Burger Technology lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of CHF222m and booked a CHF70m accounting loss. With only CHF72.3m on the balance sheet, it would appear that its going to need to raise capital again soon. The good news for shareholders is that Meyer Burger Technology has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. While unprofitable companies can be risky, they can also grow hard and fast in those pre-profit years. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Meyer Burger Technology (at least 1 which is significant) , and understanding them should be part of your investment process.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.