Here's Why Quest Holdings (ATH:QUEST) Can Manage Its Debt Responsibly

Warren Buffett famously said, '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. We note that Quest Holdings S.A. (ATH:QUEST) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

We've discovered 1 warning sign about Quest Holdings. View them for free.

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. If things get really bad, the lenders can take control of the business. 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. 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 Quest Holdings's Net Debt?

As you can see below, Quest Holdings had €133.6m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have €215.7m in cash offsetting this, leading to net cash of €82.1m.

How Strong Is Quest Holdings' Balance Sheet?

The latest balance sheet data shows that Quest Holdings had liabilities of €414.5m due within a year, and liabilities of €156.2m falling due after that. On the other hand, it had cash of €215.7m and €302.5m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €52.5m.

Of course, Quest Holdings has a market capitalization of €665.5m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Quest Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Quest Holdings

Also good is that Quest Holdings grew its EBIT at 13% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Quest Holdings's ability to maintain a healthy balance sheet going forward. 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 Quest Holdings 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. Looking at the most recent three years, Quest Holdings recorded free cash flow of 32% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

We could understand if investors are concerned about Quest Holdings's liabilities, but we can be reassured by the fact it has has net cash of €82.1m. And it also grew its EBIT by 13% over the last year. So we don't have any problem with Quest Holdings's use of debt. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Quest Holdings 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.