Does IBU-tec advanced materials (ETR:IBU) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, IBU-tec advanced materials AG (ETR:IBU) does carry debt. But should shareholders be worried about its use of debt?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for IBU-tec advanced materials

How Much Debt Does IBU-tec advanced materials Carry?

As you can see below, at the end of December 2023, IBU-tec advanced materials had €8.48m of debt, up from €6.37m a year ago. Click the image for more detail. However, it does have €379.8k in cash offsetting this, leading to net debt of about €8.10m.

A Look At IBU-tec advanced materials' Liabilities

Zooming in on the latest balance sheet data, we can see that IBU-tec advanced materials had liabilities of €2.64m due within 12 months and liabilities of €16.5m due beyond that. On the other hand, it had cash of €379.8k and €7.95m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €10.8m.

Since publicly traded IBU-tec advanced materials shares are worth a total of €65.9m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. 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 IBU-tec advanced materials's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, IBU-tec advanced materials made a loss at the EBIT level, and saw its revenue drop to €51m, which is a fall of 5.5%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months IBU-tec advanced materials produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €1.8m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled €4.9m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for IBU-tec advanced materials (of which 1 is a bit unpleasant!) you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.