Cogelec (EPA:ALLEC) Has A Rock Solid 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Cogelec SA (EPA:ALLEC) makes use of debt. But the more important question is: how much risk is that debt creating?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Cogelec Carry?

As you can see below, Cogelec had €11.6m of debt at December 2024, down from €16.6m a year prior. However, it does have €24.7m in cash offsetting this, leading to net cash of €13.1m.

How Strong Is Cogelec's Balance Sheet?

According to the last reported balance sheet, Cogelec had liabilities of €32.1m due within 12 months, and liabilities of €55.7m due beyond 12 months. Offsetting this, it had €24.7m in cash and €19.4m in receivables that were due within 12 months. So its liabilities total €43.7m more than the combination of its cash and short-term receivables.

Of course, Cogelec has a market capitalization of €223.1m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Cogelec boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Cogelec

On top of that, Cogelec grew its EBIT by 33% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Cogelec 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Cogelec 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 last three years, Cogelec actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

Although Cogelec's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €13.1m. And it impressed us with free cash flow of €13m, being 160% of its EBIT. So we don't think Cogelec's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Cogelec, you may well want to click here to check an interactive graph of its earnings per share history.

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.