Does Flughafen Zürich (VTX:FHZN) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 can see that Flughafen Zürich AG (VTX:FHZN) does use debt in its business. But is this debt a concern to shareholders?

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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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Flughafen Zürich's Debt?

As you can see below, Flughafen Zürich had CHF1.32b of debt at December 2024, down from CHF1.41b a year prior. On the flip side, it has CHF362.7m in cash leading to net debt of about CHF953.1m.

How Healthy Is Flughafen Zürich's Balance Sheet?

The latest balance sheet data shows that Flughafen Zürich had liabilities of CHF338.7m due within a year, and liabilities of CHF1.90b falling due after that. On the other hand, it had cash of CHF362.7m and CHF202.2m worth of receivables due within a year. So it has liabilities totalling CHF1.67b more than its cash and near-term receivables, combined.

Flughafen Zürich has a market capitalization of CHF6.03b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution.

See our latest analysis for Flughafen Zürich

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Flughafen Zürich's net debt is only 1.3 times its EBITDA. And its EBIT easily covers its interest expense, being 55.8 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. Also good is that Flughafen Zürich grew its EBIT at 13% over the last year, further increasing its ability to manage debt. 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 Flughafen Zürich'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Over the most recent three years, Flughafen Zürich recorded free cash flow worth 57% 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.

Our View

Happily, Flughafen Zürich's impressive interest cover implies it has the upper hand on its debt. And its EBIT growth rate is good too. We would also note that Infrastructure industry companies like Flughafen Zürich commonly do use debt without problems. Taking all this data into account, it seems to us that Flughafen Zürich takes a pretty sensible approach to debt. That means they are taking on a bit more risk, in the hope of boosting shareholder returns. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Flughafen Zürich you should be aware of.

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.