Does Gaztransport & Technigaz (EPA:GTT) 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.' 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, Gaztransport & Technigaz SA (EPA:GTT) does carry debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Gaztransport & Technigaz's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Gaztransport & Technigaz had debt of €16.0m, up from €2.50m in one year. But on the other hand it also has €343.7m in cash, leading to a €327.7m net cash position.

How Healthy Is Gaztransport & Technigaz's Balance Sheet?

The latest balance sheet data shows that Gaztransport & Technigaz had liabilities of €332.1m due within a year, and liabilities of €21.2m falling due after that. Offsetting these obligations, it had cash of €343.7m as well as receivables valued at €268.7m due within 12 months. So it can boast €259.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Gaztransport & Technigaz could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Gaztransport & Technigaz boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Gaztransport & Technigaz

On top of that, Gaztransport & Technigaz grew its EBIT by 77% 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 ultimately the future profitability of the business will decide if Gaztransport & Technigaz 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 company can only pay off debt with cold hard cash, not accounting profits. While Gaztransport & Technigaz 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 most recent three years, Gaztransport & Technigaz recorded free cash flow worth 77% 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 we empathize with investors who find debt concerning, you should keep in mind that Gaztransport & Technigaz has net cash of €327.7m, as well as more liquid assets than liabilities. And we liked the look of last year's 77% year-on-year EBIT growth. So is Gaztransport & Technigaz'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. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 2 warning signs we've spotted with Gaztransport & Technigaz (including 1 which is a bit concerning) .

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. 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.