Does ATOSS Software (ETR:AOF) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, ATOSS Software AG (ETR:AOF) does carry debt. But should shareholders be worried about its use of debt?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for ATOSS Software

How Much Debt Does ATOSS Software Carry?

The image below, which you can click on for greater detail, shows that at June 2022 ATOSS Software had debt of €10.9m, up from €9.56m in one year. But it also has €39.9m in cash to offset that, meaning it has €29.0m net cash.

A Look At ATOSS Software's Liabilities

The latest balance sheet data shows that ATOSS Software had liabilities of €20.5m due within a year, and liabilities of €17.8m falling due after that. Offsetting these obligations, it had cash of €39.9m as well as receivables valued at €10.1m due within 12 months. So it actually has €11.7m more liquid assets than total liabilities.

Having regard to ATOSS Software's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the €1.12b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, ATOSS Software boasts net cash, so it's fair to say it does not have a heavy debt load!

The good news is that ATOSS Software has increased its EBIT by 9.6% 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 ATOSS Software'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While ATOSS Software 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. Over the last three years, ATOSS Software recorded free cash flow worth a fulsome 83% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case ATOSS Software has €29.0m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 83% of that EBIT to free cash flow, bringing in €25m. So we don't think ATOSS Software's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in ATOSS Software, you may well want to click here to check an interactive graph of its earnings per share history.

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.

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

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.