Does Kulmbacher Brauerei Aktien-Gesellschaft (MUN:KUL) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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. Importantly, Kulmbacher Brauerei Aktien-Gesellschaft (MUN:KUL) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Kulmbacher Brauerei Aktien-Gesellschaft

What Is Kulmbacher Brauerei Aktien-Gesellschaft's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 Kulmbacher Brauerei Aktien-Gesellschaft had €18.9m of debt, an increase on €4.44m, over one year. But it also has €19.9m in cash to offset that, meaning it has €1.01m net cash.

How Healthy Is Kulmbacher Brauerei Aktien-Gesellschaft's Balance Sheet?

According to the last reported balance sheet, Kulmbacher Brauerei Aktien-Gesellschaft had liabilities of €86.6m due within 12 months, and liabilities of €72.1m due beyond 12 months. Offsetting these obligations, it had cash of €19.9m as well as receivables valued at €39.6m due within 12 months. So it has liabilities totalling €99.2m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of €155.2m. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Despite its noteworthy liabilities, Kulmbacher Brauerei Aktien-Gesellschaft boasts net cash, so it's fair to say it does not have a heavy debt load!

While Kulmbacher Brauerei Aktien-Gesellschaft doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Kulmbacher Brauerei Aktien-Gesellschaft'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Kulmbacher Brauerei Aktien-Gesellschaft 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, Kulmbacher Brauerei Aktien-Gesellschaft actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

Although Kulmbacher Brauerei Aktien-Gesellschaft's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €1.01m. And it impressed us with free cash flow of €13m, being 145% of its EBIT. So we don't have any problem with Kulmbacher Brauerei Aktien-Gesellschaft's use of debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 4 warning signs for Kulmbacher Brauerei Aktien-Gesellschaft (2 are significant) you should be aware of.

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.

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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.