Does Eckert & Ziegler (ETR:EUZ) 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.' 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, Eckert & Ziegler SE (ETR:EUZ) does carry debt. But is this debt a concern to shareholders?

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. 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. 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 Eckert & Ziegler

What Is Eckert & Ziegler's Debt?

The chart below, which you can click on for greater detail, shows that Eckert & Ziegler had €25.1m in debt in March 2024; about the same as the year before. But on the other hand it also has €66.3m in cash, leading to a €41.2m net cash position.

How Healthy Is Eckert & Ziegler's Balance Sheet?

According to the last reported balance sheet, Eckert & Ziegler had liabilities of €88.3m due within 12 months, and liabilities of €131.2m due beyond 12 months. Offsetting these obligations, it had cash of €66.3m as well as receivables valued at €63.3m due within 12 months. So it has liabilities totalling €89.9m more than its cash and near-term receivables, combined.

Of course, Eckert & Ziegler has a market capitalization of €1.04b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Eckert & Ziegler boasts net cash, so it's fair to say it does not have a heavy debt load!

The good news is that Eckert & Ziegler has increased its EBIT by 6.5% over twelve months, which should ease any concerns about debt repayment. 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 Eckert & Ziegler's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Eckert & Ziegler 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. Looking at the most recent three years, Eckert & Ziegler recorded free cash flow of 21% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Eckert & Ziegler has €41.2m in net cash. And it also grew its EBIT by 6.5% over the last year. So we are not troubled with Eckert & Ziegler's debt use. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Eckert & Ziegler's earnings per share history for free.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.

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