CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság (BUSE:CYBERG) Has A Somewhat Strained Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 CyBERG Corp. Kereskedelmi, Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság (BUSE:CYBERG) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság

What Is CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság's Debt?

The image below, which you can click on for greater detail, shows that at December 2020 CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság had debt of Ft552.7m, up from Ft59.7m in one year. However, it also had Ft23.2m in cash, and so its net debt is Ft529.5m.

How Strong Is CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság's Balance Sheet?

According to the last reported balance sheet, CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság had liabilities of Ft593.3m due within 12 months, and liabilities of Ft497.3m due beyond 12 months. Offsetting this, it had Ft23.2m in cash and Ft471.5m in receivables that were due within 12 months. So it has liabilities totalling Ft595.8m more than its cash and near-term receivables, combined.

Given CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság has a market capitalization of Ft5.10b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward.

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság shareholders face the double whammy of a high net debt to EBITDA ratio (6.5), and fairly weak interest coverage, since EBIT is just 0.96 times the interest expense. This means we'd consider it to have a heavy debt load. One redeeming factor for CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság is that it turned last year's EBIT loss into a gain of Ft21m, over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So it is important to check how much of its earnings before interest and tax (EBIT) converts to actual free cash flow. Considering the last year, CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság 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.

Our View

To be frank both CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság's net debt to EBITDA and its track record of covering its interest expense with its EBIT make us rather uncomfortable with its debt levels. But at least it's pretty decent at staying on top of its total liabilities; that's encouraging. Looking at the balance sheet and taking into account all these factors, we do believe that debt is making CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság stock a bit risky. That's not necessarily a bad thing, but we'd generally feel more comfortable with less leverage. 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, we've discovered 5 warning signs for CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság (2 are a bit unpleasant!) that you should be aware of before investing here.

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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