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

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is ALSO Holding's Net Debt?

The image below, which you can click on for greater detail, shows that ALSO Holding had debt of €151.8m at the end of December 2024, a reduction from €242.1m over a year. But it also has €730.9m in cash to offset that, meaning it has €579.1m net cash.

How Strong Is ALSO Holding's Balance Sheet?

We can see from the most recent balance sheet that ALSO Holding had liabilities of €2.23b falling due within a year, and liabilities of €169.6m due beyond that. Offsetting these obligations, it had cash of €730.9m as well as receivables valued at €1.38b due within 12 months. So its liabilities total €287.7m more than the combination of its cash and short-term receivables.

Since publicly traded ALSO Holding shares are worth a total of €3.09b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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.

View our latest analysis for ALSO Holding

But the bad news is that ALSO Holding has seen its EBIT plunge 12% in the last twelve months. If that rate of decline in earnings continues, the company could find itself in a tight spot. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ALSO Holding's ability to maintain a healthy balance sheet going forward. 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. ALSO 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 last three years, ALSO Holding actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that ALSO Holding has €579.1m in net cash. The cherry on top was that in converted 118% of that EBIT to free cash flow, bringing in €291m. So we don't have any problem with ALSO Holding's use of debt. 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.