Eckert & Ziegler (ETR:EUZ) Has A Pretty Healthy Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Eckert & Ziegler SE (ETR:EUZ) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Eckert & Ziegler

How Much Debt Does Eckert & Ziegler Carry?

You can click the graphic below for the historical numbers, but it shows that Eckert & Ziegler had €21.6m of debt in September 2024, down from €38.2m, one year before. But on the other hand it also has €97.6m in cash, leading to a €76.1m net cash position.

How Healthy Is Eckert & Ziegler's Balance Sheet?

The latest balance sheet data shows that Eckert & Ziegler had liabilities of €99.9m due within a year, and liabilities of €130.7m falling due after that. On the other hand, it had cash of €97.6m and €63.2m worth of receivables due within a year. So it has liabilities totalling €69.9m more than its cash and near-term receivables, combined.

Of course, Eckert & Ziegler has a market capitalization of €1.19b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Eckert & Ziegler boasts net cash, so it's fair to say it does not have a heavy debt load!

Also good is that Eckert & Ziegler grew its EBIT at 14% over the last year, further increasing its ability to manage debt. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. 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. In the last three years, Eckert & Ziegler's free cash flow amounted to 29% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

We could understand if investors are concerned about Eckert & Ziegler's liabilities, but we can be reassured by the fact it has has net cash of €76.1m. And it also grew its EBIT by 14% over the last year. So is Eckert & Ziegler's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Eckert & Ziegler, you may well want to click here to check an interactive graph of its earnings per share history.

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.