Kuehne + Nagel International (VTX:KNIN) Has A Rock Solid 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. As with many other companies Kuehne + Nagel International AG (VTX:KNIN) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Kuehne + Nagel International

What Is Kuehne + Nagel International's Debt?

As you can see below, Kuehne + Nagel International had CHF410.0m of debt, at June 2022, which is about the same as the year before. You can click the chart for greater detail. However, it does have CHF2.19b in cash offsetting this, leading to net cash of CHF1.78b.

How Strong Is Kuehne + Nagel International's Balance Sheet?

According to the last reported balance sheet, Kuehne + Nagel International had liabilities of CHF9.10b due within 12 months, and liabilities of CHF2.82b due beyond 12 months. Offsetting this, it had CHF2.19b in cash and CHF7.51b in receivables that were due within 12 months. So its liabilities total CHF2.22b more than the combination of its cash and short-term receivables.

Since publicly traded Kuehne + Nagel International shares are worth a very impressive total of CHF30.7b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Kuehne + Nagel International also has more cash than debt, so we're pretty confident it can manage its debt safely.

Even more impressive was the fact that Kuehne + Nagel International grew its EBIT by 148% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Kuehne + Nagel International'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Kuehne + Nagel International 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, Kuehne + Nagel International recorded free cash flow worth a fulsome 100% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Kuehne + Nagel International has CHF1.78b in net cash. And it impressed us with free cash flow of CHF3.5b, being 100% of its EBIT. So we don't think Kuehne + Nagel International's use of debt is risky. 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. For example Kuehne + Nagel International has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.