Is Kri-Kri Milk Industry (ATH:KRI) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Kri-Kri Milk Industry S.A. (ATH:KRI) makes use of debt. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Kri-Kri Milk Industry

What Is Kri-Kri Milk Industry's Debt?

As you can see below, Kri-Kri Milk Industry had €4.45m of debt at March 2024, down from €12.7m a year prior. But on the other hand it also has €16.6m in cash, leading to a €12.2m net cash position.

A Look At Kri-Kri Milk Industry's Liabilities

The latest balance sheet data shows that Kri-Kri Milk Industry had liabilities of €41.4m due within a year, and liabilities of €15.7m falling due after that. On the other hand, it had cash of €16.6m and €35.9m worth of receivables due within a year. So it has liabilities totalling €4.60m more than its cash and near-term receivables, combined.

This state of affairs indicates that Kri-Kri Milk Industry'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 €382.3m company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Kri-Kri Milk Industry also has more cash than debt, so we're pretty confident it can manage its debt safely.

Better yet, Kri-Kri Milk Industry grew its EBIT by 243% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Kri-Kri Milk Industry 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. Kri-Kri Milk Industry 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 most recent three years, Kri-Kri Milk Industry recorded free cash flow worth 66% 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 it is always sensible to look at a company's total liabilities, it is very reassuring that Kri-Kri Milk Industry has €12.2m in net cash. And it impressed us with its EBIT growth of 243% over the last year. So we don't think Kri-Kri Milk Industry'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. We've identified 1 warning sign with Kri-Kri Milk Industry , and understanding them should be part of your investment process.

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.