Eckert & Ziegler Strahlen- und Medizintechnik (ETR:EUZ) Has A Pretty Healthy Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Eckert & Ziegler Strahlen- und Medizintechnik AG (ETR:EUZ) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Eckert & Ziegler Strahlen- und Medizintechnik

What Is Eckert & Ziegler Strahlen- und Medizintechnik's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2023 Eckert & Ziegler Strahlen- und Medizintechnik had €38.2m of debt, an increase on €22.9m, over one year. However, its balance sheet shows it holds €88.4m in cash, so it actually has €50.2m net cash.

A Look At Eckert & Ziegler Strahlen- und Medizintechnik's Liabilities

Zooming in on the latest balance sheet data, we can see that Eckert & Ziegler Strahlen- und Medizintechnik had liabilities of €80.1m due within 12 months and liabilities of €138.4m due beyond that. On the other hand, it had cash of €88.4m and €60.9m worth of receivables due within a year. So it has liabilities totalling €69.2m more than its cash and near-term receivables, combined.

Given Eckert & Ziegler Strahlen- und Medizintechnik has a market capitalization of €813.3m, it's hard to believe these liabilities pose much threat. 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 Strahlen- und Medizintechnik boasts net cash, so it's fair to say it does not have a heavy debt load!

Another good sign is that Eckert & Ziegler Strahlen- und Medizintechnik has been able to increase its EBIT by 26% in twelve months, making it easier to pay down 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 Strahlen- und Medizintechnik'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 Strahlen- und Medizintechnik 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 Strahlen- und Medizintechnik recorded free cash flow of 25% 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 Strahlen- und Medizintechnik has €50.2m in net cash. And it impressed us with its EBIT growth of 26% over the last year. So is Eckert & Ziegler Strahlen- und Medizintechnik's debt a risk? It doesn't seem so to us. 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 Strahlen- und Medizintechnik's earnings per share history for free.

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.