We Think CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság (BUSE:CYBERG) Is Taking Some Risk With Its Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies CyBERG Corp. Kereskedelmi, Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság (BUSE:CYBERG) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

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

How Much Debt Does CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság Carry?

As you can see below, at the end of June 2021, CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság had Ft496.7m of debt, up from Ft57.8m a year ago. Click the image for more detail. And it doesn't have much cash, so its net debt is about the same.

How Healthy 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 Ft705.0m due within 12 months, and liabilities of Ft506.0m due beyond 12 months. Offsetting this, it had Ft9.04m in cash and Ft315.1m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by Ft886.8m.

Given CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság has a market capitalization of Ft5.71b, 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.

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). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság has a debt to EBITDA ratio of 4.1, which signals significant debt, but is still pretty reasonable for most types of business. However, its interest coverage of 1k is very high, suggesting that the interest expense on the debt is currently quite low. Notably, CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság made a loss at the EBIT level, last year, but improved that to positive EBIT of Ft71m in the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But it is CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. So it's worth checking how much of the earnings before interest and tax (EBIT) is backed by 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

Neither CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság's ability to convert EBIT to free cash flow nor its net debt to EBITDA gave us confidence in its ability to take on more debt. But its interest cover tells a very different story, and suggests some resilience. Looking at all the angles mentioned above, it does seem to us that CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság is a somewhat risky investment as a result of its debt. That's not necessarily a bad thing, since leverage can boost returns on equity, but it is something to be aware of. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 4 warning signs for CyBERG Kereskedelmi Szolgáltató és Vendéglátó Nyilvánosan Muködo Részvénytársaság you should be aware of, and 1 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.

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.

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