Flughafen Zürich (VTX:FHZN) 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Flughafen Zürich AG (VTX:FHZN) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Flughafen Zürich

What Is Flughafen Zürich's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2020 Flughafen Zürich had debt of CHF1.82b, up from CHF1.16b in one year. However, it does have CHF601.8m in cash offsetting this, leading to net debt of about CHF1.22b.

How Healthy Is Flughafen Zürich's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Flughafen Zürich had liabilities of CHF298.7m due within 12 months and liabilities of CHF2.44b due beyond that. Offsetting this, it had CHF601.8m in cash and CHF118.3m in receivables that were due within 12 months. So its liabilities total CHF2.02b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Flughafen Zürich has a market capitalization of CHF4.83b, 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Flughafen Zürich can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Flughafen Zürich had a loss before interest and tax, and actually shrunk its revenue by 48%, to CHF624m. That makes us nervous, to say the least.

Caveat Emptor

Not only did Flughafen Zürich's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost CHF57m at the EBIT level. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled CHF116m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. 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. 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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