Does Nibsa (SNSE:NIBSA) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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, Nibsa S.A. (SNSE:NIBSA) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Nibsa

What Is Nibsa's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Nibsa had CL$2.40b of debt, an increase on CL$2.00b, over one year. But it also has CL$3.65b in cash to offset that, meaning it has CL$1.24b net cash.

How Strong Is Nibsa's Balance Sheet?

We can see from the most recent balance sheet that Nibsa had liabilities of CL$1.50b falling due within a year, and liabilities of CL$3.15b due beyond that. On the other hand, it had cash of CL$3.65b and CL$1.10b worth of receivables due within a year. So it can boast CL$93.6m more liquid assets than total liabilities.

Having regard to Nibsa's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CL$6.23b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Nibsa boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Nibsa's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Nibsa made a loss at the EBIT level, and saw its revenue drop to CL$6.7b, which is a fall of 12%. We would much prefer see growth.

So How Risky Is Nibsa?

Although Nibsa had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of CL$423m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. For example, we've discovered 2 warning signs for Nibsa (1 is a bit unpleasant!) that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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This article by Simply Wall St is general in nature. 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.
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