Does Nynomic (ETR:M7U) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Nynomic AG (ETR:M7U) makes use of debt. But is this debt a concern to shareholders?

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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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Nynomic's Debt?

You can click the graphic below for the historical numbers, but it shows that Nynomic had €4.95m of debt in December 2024, down from €9.29m, one year before. However, it does have €16.3m in cash offsetting this, leading to net cash of €11.4m.

How Healthy Is Nynomic's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Nynomic had liabilities of €22.9m due within 12 months and liabilities of €13.6m due beyond that. Offsetting these obligations, it had cash of €16.3m as well as receivables valued at €19.4m due within 12 months. So its liabilities total €836.0k more than the combination of its cash and short-term receivables.

This state of affairs indicates that Nynomic's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €100.5m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Nynomic also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Nynomic

It is just as well that Nynomic's load is not too heavy, because its EBIT was down 55% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. 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 Nynomic can strengthen its balance sheet over time. 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. Nynomic 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, Nynomic created free cash flow amounting to 15% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

We could understand if investors are concerned about Nynomic's liabilities, but we can be reassured by the fact it has has net cash of €11.4m. So although we see some areas for improvement, we're not too worried about Nynomic's balance sheet. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Nynomic 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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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.