Does ALSO Holding (VTX:ALSN) Have A Healthy Balance Sheet?

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. Importantly, ALSO Holding AG (VTX:ALSN) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for ALSO Holding

How Much Debt Does ALSO Holding Carry?

The image below, which you can click on for greater detail, shows that ALSO Holding had debt of €205.5m at the end of June 2023, a reduction from €333.4m over a year. But it also has €612.1m in cash to offset that, meaning it has €406.6m net cash.

How Strong Is ALSO Holding's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ALSO Holding had liabilities of €1.82b due within 12 months and liabilities of €273.6m due beyond that. Offsetting this, it had €612.1m in cash and €589.5m in receivables that were due within 12 months. So it has liabilities totalling €894.0m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since ALSO Holding has a market capitalization of €2.57b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, ALSO Holding also has more cash than debt, so we're pretty confident it can manage its debt safely.

But the bad news is that ALSO Holding has seen its EBIT plunge 12% in the last twelve months. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if ALSO Holding 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While ALSO Holding 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 three years, ALSO Holding actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

Although ALSO Holding's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €406.6m. And it impressed us with free cash flow of €894m, being 121% of its EBIT. So we are not troubled with ALSO Holding's debt use. Over time, share prices tend to follow earnings per share, so if you're interested in ALSO Holding, you may well want to click here to check an interactive graph of its earnings per share history.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.