Meyer Burger Technology (VTX:MBTN) Is Making Moderate Use Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We note that Meyer Burger Technology AG (VTX:MBTN) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Meyer Burger Technology

How Much Debt Does Meyer Burger Technology Carry?

The image below, which you can click on for greater detail, shows that at June 2023 Meyer Burger Technology had debt of CHF377.5m, up from CHF232.4m in one year. However, it also had CHF371.2m in cash, and so its net debt is CHF6.31m.

How Strong Is Meyer Burger Technology's Balance Sheet?

According to the last reported balance sheet, Meyer Burger Technology had liabilities of CHF131.4m due within 12 months, and liabilities of CHF354.0m due beyond 12 months. On the other hand, it had cash of CHF371.2m and CHF63.7m worth of receivables due within a year. So it has liabilities totalling CHF50.5m more than its cash and near-term receivables, combined.

Given Meyer Burger Technology has a market capitalization of CHF989.1m, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Carrying virtually no net debt, Meyer Burger Technology has a very light debt load indeed. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Meyer Burger Technology's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Meyer Burger Technology reported revenue of CHF187m, which is a gain of 138%, although it did not report any earnings before interest and tax. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

Despite the top line growth, Meyer Burger Technology still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at CHF76m. 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled CHF227m in negative free cash flow over the last twelve months. So in short it's a really risky stock. 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. We've identified 2 warning signs with Meyer Burger Technology (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.