Adris grupa d. d (ZGSE:ADRS) Has A Pretty Healthy Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Adris grupa d. d. (ZGSE:ADRS) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Adris grupa d. d

What Is Adris grupa d. d's Net Debt?

As you can see below, at the end of September 2024, Adris grupa d. d had €272.1m of debt, up from €240.8m a year ago. Click the image for more detail. But it also has €345.2m in cash to offset that, meaning it has €73.0m net cash.

A Look At Adris grupa d. d's Liabilities

Zooming in on the latest balance sheet data, we can see that Adris grupa d. d had liabilities of €1.10b due within 12 months and liabilities of €324.8m due beyond that. Offsetting these obligations, it had cash of €345.2m as well as receivables valued at €146.4m due within 12 months. So it has liabilities totalling €929.6m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of €1.11b, so it does suggest shareholders should keep an eye on Adris grupa d. d's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. Despite its noteworthy liabilities, Adris grupa d. d boasts net cash, so it's fair to say it does not have a heavy debt load!

Another good sign is that Adris grupa d. d has been able to increase its EBIT by 25% in twelve months, making it easier to pay down debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Adris grupa d. d's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Adris grupa d. d 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 last three years, Adris grupa d. d reported free cash flow worth 3.3% of its EBIT, which is really quite low. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

While Adris grupa d. d does have more liabilities than liquid assets, it also has net cash of €73.0m. And it impressed us with its EBIT growth of 25% over the last year. So we are not troubled with Adris grupa d. d's debt use. 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. For example - Adris grupa d. d has 1 warning sign we think you should be aware of.

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.