Does Basler (ETR:BSL) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We note that Basler Aktiengesellschaft (ETR:BSL) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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.

View our latest analysis for Basler

How Much Debt Does Basler Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Basler had €24.5m of debt, an increase on €20.2m, over one year. But it also has €41.8m in cash to offset that, meaning it has €17.3m net cash.

How Healthy Is Basler's Balance Sheet?

The latest balance sheet data shows that Basler had liabilities of €28.7m due within a year, and liabilities of €42.2m falling due after that. On the other hand, it had cash of €41.8m and €25.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €3.34m.

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 €860.5m 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.

On top of that, Basler grew its EBIT by 40% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Basler 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. 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. During the last three years, Basler produced sturdy free cash flow equating to 54% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Basler has €17.3m in net cash. And we liked the look of last year's 40% year-on-year EBIT growth. So is Basler's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Basler you should be aware of.

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. 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.
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