We Think Adris grupa d. d (ZGSE:ADRS) Is Taking Some Risk With Its Debt

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 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 is this debt a concern to shareholders?

When Is Debt Dangerous?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

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

As you can see below, at the end of December 2024, Adris grupa d. d had €392.8m of debt, up from €232.4m a year ago. Click the image for more detail. However, its balance sheet shows it holds €459.8m in cash, so it actually has €67.0m net cash.

How Strong Is Adris grupa d. d's Balance Sheet?

We can see from the most recent balance sheet that Adris grupa d. d had liabilities of €1.04b falling due within a year, and liabilities of €500.5m due beyond that. On the other hand, it had cash of €459.8m and €139.1m worth of receivables due within a year. So its liabilities total €946.1m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of €1.25b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. While it does have liabilities worth noting, Adris grupa d. d also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Adris grupa d. d

The good news is that Adris grupa d. d has increased its EBIT by 3.6% over twelve months, which should ease any concerns about debt repayment. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Adris grupa d. d can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. 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. Considering the last three years, Adris grupa d. d actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Summing Up

While Adris grupa d. d does have more liabilities than liquid assets, it also has net cash of €67.0m. And it also grew its EBIT by 3.6% over the last year. So while Adris grupa d. d does not have a great balance sheet, it's certainly not too bad. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with Adris grupa d. d , 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.