ANY Biztonsági Nyomda Nyrt (BUSE:ANY) Has A Somewhat Strained Balance Sheet

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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 note that ANY Biztonsági Nyomda Nyrt. (BUSE:ANY) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for ANY Biztonsági Nyomda Nyrt

How Much Debt Does ANY Biztonsági Nyomda Nyrt Carry?

As you can see below, ANY Biztonsági Nyomda Nyrt had Ft7.16b of debt, at September 2020, which is about the same as the year before. You can click the chart for greater detail. However, it does have Ft2.31b in cash offsetting this, leading to net debt of about Ft4.85b.

How Healthy Is ANY Biztonsági Nyomda Nyrt's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ANY Biztonsági Nyomda Nyrt had liabilities of Ft7.96b due within 12 months and liabilities of Ft6.19b due beyond that. Offsetting this, it had Ft2.31b in cash and Ft3.91b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by Ft7.92b.

While this might seem like a lot, it is not so bad since ANY Biztonsági Nyomda Nyrt has a market capitalization of Ft18.4b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk.

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

We'd say that ANY Biztonsági Nyomda Nyrt's moderate net debt to EBITDA ratio ( being 2.1), indicates prudence when it comes to debt. And its commanding EBIT of 10.8 times its interest expense, implies the debt load is as light as a peacock feather. Shareholders should be aware that ANY Biztonsági Nyomda Nyrt's EBIT was down 30% last year. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ANY Biztonsági Nyomda Nyrt'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. So we always check how much of that EBIT is translated into free cash flow. In the last three years, ANY Biztonsági Nyomda Nyrt's free cash flow amounted to 43% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Our View

ANY Biztonsági Nyomda Nyrt's EBIT growth rate was a real negative on this analysis, although the other factors we considered cast it in a significantly better light. For example its interest cover was refreshing. When we consider all the factors discussed, it seems to us that ANY Biztonsági Nyomda Nyrt is taking some risks with its use of debt. While that debt can boost returns, we think the company has enough leverage now. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for ANY Biztonsági Nyomda Nyrt you should be aware of, and 2 of them shouldn't be ignored.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. 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.
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