Here's Why ANY Biztonsági Nyomda Nyrt (BUSE:ANY) 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. As with many other companies ANY Biztonsági Nyomda Nyrt. (BUSE:ANY) makes use of debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, 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.

View our latest analysis for ANY Biztonsági Nyomda Nyrt

What Is ANY Biztonsági Nyomda Nyrt's Net Debt?

You can click the graphic below for the historical numbers, but it shows that ANY Biztonsági Nyomda Nyrt had Ft5.40b of debt in December 2021, down from Ft6.99b, one year before. However, it does have Ft1.30b in cash offsetting this, leading to net debt of about Ft4.11b.

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

The latest balance sheet data shows that ANY Biztonsági Nyomda Nyrt had liabilities of Ft8.77b due within a year, and liabilities of Ft3.95b falling due after that. Offsetting these obligations, it had cash of Ft1.30b as well as receivables valued at Ft5.68b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by Ft5.74b.

ANY Biztonsági Nyomda Nyrt has a market capitalization of Ft22.7b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution.

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

ANY Biztonsági Nyomda Nyrt's net debt is only 0.67 times its EBITDA. And its EBIT covers its interest expense a whopping 62.8 times over. So we're pretty relaxed about its super-conservative use of debt. Even more impressive was the fact that ANY Biztonsági Nyomda Nyrt grew its EBIT by 399% over twelve months. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if ANY Biztonsági Nyomda Nyrt 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, a company can only pay off debt with cold hard cash, not accounting profits. So we always check how much of that EBIT is translated into free cash flow. Over the most recent three years, ANY Biztonsági Nyomda Nyrt recorded free cash flow worth 63% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Our View

ANY Biztonsági Nyomda Nyrt's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And that's just the beginning of the good news since its EBIT growth rate is also very heartening. Looking at the bigger picture, we think ANY Biztonsági Nyomda Nyrt's use of debt seems quite reasonable and we're not concerned about it. After all, sensible leverage can boost returns on equity. 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 ANY Biztonsági Nyomda Nyrt , 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.