Does Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt (BUSE:RICHTER) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt. (BUSE:RICHTER) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt

What Is Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt's Net Debt?

The image below, which you can click on for greater detail, shows that Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt had debt of Ft66.2b at the end of September 2024, a reduction from Ft92.1b over a year. But on the other hand it also has Ft75.0b in cash, leading to a Ft8.75b net cash position.

How Strong Is Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt's Balance Sheet?

According to the last reported balance sheet, Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt had liabilities of Ft141.0b due within 12 months, and liabilities of Ft117.9b due beyond 12 months. Offsetting this, it had Ft75.0b in cash and Ft253.9b in receivables that were due within 12 months. So it actually has Ft70.0b more liquid assets than total liabilities.

This surplus suggests that Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt has more cash than debt is arguably a good indication that it can manage its debt safely.

On top of that, Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt grew its EBIT by 33% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt 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. In the last three years, Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt's free cash flow amounted to 47% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt has net cash of Ft8.75b, as well as more liquid assets than liabilities. And we liked the look of last year's 33% year-on-year EBIT growth. So we don't think Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt's use of debt is risky. 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. For example, we've discovered 1 warning sign for Richter Gedeon Vegyészeti Gyár Nyilvánosan Muködo Rt that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.