Does AS Merko Ehitus (TAL:MRK1T) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, AS Merko Ehitus (TAL:MRK1T) does carry debt. But is this debt a concern to shareholders?

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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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is AS Merko Ehitus's Debt?

As you can see below, AS Merko Ehitus had €20.8m of debt at March 2025, down from €44.5m a year prior. But it also has €95.5m in cash to offset that, meaning it has €74.7m net cash.

How Healthy Is AS Merko Ehitus' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that AS Merko Ehitus had liabilities of €139.3m due within 12 months and liabilities of €29.7m due beyond that. Offsetting these obligations, it had cash of €95.5m as well as receivables valued at €57.4m due within 12 months. So its liabilities total €16.0m more than the combination of its cash and short-term receivables.

Since publicly traded AS Merko Ehitus shares are worth a total of €546.0m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, AS Merko Ehitus boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for AS Merko Ehitus

On top of that, AS Merko Ehitus grew its EBIT by 85% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is AS Merko Ehitus's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While AS Merko Ehitus 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. During the last three years, AS Merko Ehitus generated free cash flow amounting to a very robust 94% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that AS Merko Ehitus has €74.7m in net cash. And it impressed us with free cash flow of €41m, being 94% of its EBIT. So we don't think AS Merko Ehitus's use of debt is risky. 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. Be aware that AS Merko Ehitus is showing 1 warning sign in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.