These 4 Measures Indicate That Eckert & Ziegler Strahlen- und Medizintechnik (ETR:EUZ) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Eckert & Ziegler Strahlen- und Medizintechnik AG (ETR:EUZ) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Eckert & Ziegler Strahlen- und Medizintechnik

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

The image below, which you can click on for greater detail, shows that at March 2023 Eckert & Ziegler Strahlen- und Medizintechnik had debt of €25.5m, up from €7.22m in one year. But it also has €79.9m in cash to offset that, meaning it has €54.4m net cash.

How Healthy Is Eckert & Ziegler Strahlen- und Medizintechnik's Balance Sheet?

We can see from the most recent balance sheet that Eckert & Ziegler Strahlen- und Medizintechnik had liabilities of €68.0m falling due within a year, and liabilities of €133.9m due beyond that. Offsetting these obligations, it had cash of €79.9m as well as receivables valued at €60.2m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €61.8m.

Since publicly traded Eckert & Ziegler Strahlen- und Medizintechnik shares are worth a total of €801.3m, it seems unlikely that this level of liabilities would be a major threat. 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 Strahlen- und Medizintechnik boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Eckert & Ziegler Strahlen- und Medizintechnik has boosted its EBIT by 74%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Eckert & Ziegler Strahlen- und Medizintechnik can strengthen its balance sheet over time. 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. Eckert & Ziegler Strahlen- und Medizintechnik may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Eckert & Ziegler Strahlen- und Medizintechnik'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 Strahlen- und Medizintechnik's liabilities, but we can be reassured by the fact it has has net cash of €54.4m. And it impressed us with its EBIT growth of 74% over the last year. So we don't think Eckert & Ziegler Strahlen- und Medizintechnik's use of debt is risky. 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.

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. 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.