Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság (BUSE:GSPARK) Has A Pretty Healthy Balance Sheet

Warren Buffett famously said, '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 Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság (BUSE:GSPARK) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság

What Is Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság had €80.9m of debt in September 2024, down from €86.8m, one year before. However, it also had €12.0m in cash, and so its net debt is €69.0m.

How Healthy Is Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság's Balance Sheet?

The latest balance sheet data shows that Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság had liabilities of €11.3m due within a year, and liabilities of €75.8m falling due after that. On the other hand, it had cash of €12.0m and €2.67m worth of receivables due within a year. So its liabilities total €72.4m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság has a market capitalization of €129.1m, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution.

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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság has a debt to EBITDA ratio of 4.2, which signals significant debt, but is still pretty reasonable for most types of business. However, its interest coverage of 13.9 is very high, suggesting that the interest expense on the debt is currently quite low. Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság grew its EBIT by 9.2% in the last year. That's far from incredible but it is a good thing, when it comes to paying off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság 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 it's worth checking how much of that EBIT is backed by free cash flow. Over the last three years, Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság recorded free cash flow worth a fulsome 97% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Our View

Happily, Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság's impressive interest cover implies it has the upper hand on its debt. But the stark truth is that we are concerned by its net debt to EBITDA. All these things considered, it appears that Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság can comfortably handle its current debt levels. On the plus side, this leverage can boost shareholder returns, but the potential downside is more risk of loss, so it's worth monitoring the balance sheet. 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. Case in point: We've spotted 2 warning signs for Graphisoft Park SE Ingatlanfejleszto Európai Részvénytársaság you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.