Does Aumann (ETR:AAG) 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, Aumann AG (ETR:AAG) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Aumann

What Is Aumann's Debt?

The image below, which you can click on for greater detail, shows that Aumann had debt of €16.6m at the end of September 2020, a reduction from €21.7m over a year. However, it does have €70.7m in cash offsetting this, leading to net cash of €54.1m.

How Healthy Is Aumann's Balance Sheet?

The latest balance sheet data shows that Aumann had liabilities of €56.4m due within a year, and liabilities of €40.5m falling due after that. On the other hand, it had cash of €70.7m and €105.4m worth of receivables due within a year. So it can boast €79.2m more liquid assets than total liabilities.

This excess liquidity is a great indication that Aumann's balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Aumann boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Aumann'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.

In the last year Aumann had a loss before interest and tax, and actually shrunk its revenue by 35%, to €184m. That makes us nervous, to say the least.

So How Risky Is Aumann?

While Aumann lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow €38m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. For riskier companies like Aumann I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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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