Koncar - distributivni i specijalni transformatori d.d (ZGSE:KODT) Seems To Use Debt Rather Sparingly

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. We can see that Koncar - distributivni i specijalni transformatori d.d. (ZGSE:KODT) does use debt in its business. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Koncar - distributivni i specijalni transformatori d.d's Net Debt?

The image below, which you can click on for greater detail, shows that Koncar - distributivni i specijalni transformatori d.d had debt of €8.18m at the end of December 2024, a reduction from €9.71m over a year. But on the other hand it also has €103.0m in cash, leading to a €94.8m net cash position.

How Healthy Is Koncar - distributivni i specijalni transformatori d.d's Balance Sheet?

The latest balance sheet data shows that Koncar - distributivni i specijalni transformatori d.d had liabilities of €225.5m due within a year, and liabilities of €19.5m falling due after that. Offsetting this, it had €103.0m in cash and €180.9m in receivables that were due within 12 months. So it actually has €38.8m more liquid assets than total liabilities.

This short term liquidity is a sign that Koncar - distributivni i specijalni transformatori d.d could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Koncar - distributivni i specijalni transformatori d.d boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Koncar - distributivni i specijalni transformatori d.d

Better yet, Koncar - distributivni i specijalni transformatori d.d grew its EBIT by 120% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. 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 Koncar - distributivni i specijalni transformatori d.d 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. Koncar - distributivni i specijalni transformatori d.d 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, Koncar - distributivni i specijalni transformatori d.d recorded free cash flow worth a fulsome 88% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case Koncar - distributivni i specijalni transformatori d.d has €94.8m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 88% of that EBIT to free cash flow, bringing in €143m. So we don't think Koncar - distributivni i specijalni transformatori d.d's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Koncar - distributivni i specijalni transformatori d.d's earnings per share history for free.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.