Basler (ETR:BSL) Has A Rock Solid Balance Sheet

Warren Buffett famously said, '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, Basler Aktiengesellschaft (ETR:BSL) does carry debt. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Basler

How Much Debt Does Basler Carry?

As you can see below, at the end of December 2020, Basler had €25.2m of debt, up from €19.6m a year ago. Click the image for more detail. However, it does have €47.9m in cash offsetting this, leading to net cash of €22.6m.

How Healthy Is Basler's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Basler had liabilities of €31.3m due within 12 months and liabilities of €43.9m due beyond that. Offsetting this, it had €47.9m in cash and €19.9m in receivables that were due within 12 months. So it has liabilities totalling €7.43m more than its cash and near-term receivables, combined.

This state of affairs indicates that Basler's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the €1.12b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Basler also has more cash than debt, so we're pretty confident it can manage its debt safely.

Also positive, Basler grew its EBIT by 21% in the last year, and that should make it easier to pay down debt, going forward. 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 Basler'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Basler 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. Over the most recent three years, Basler recorded free cash flow worth 56% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Basler has €22.6m in net cash. And it impressed us with its EBIT growth of 21% over the last year. So is Basler's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Basler you should be aware of.

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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