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 can see that Nordtelekom Távközlési Szolgáltató Nyrt. (BUSE:NORDTELEKOM) does use debt in its business. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Nordtelekom Távközlési Szolgáltató Nyrt’s Net Debt?
As you can see below, at the end of December 2018, Nordtelekom Távközlési Szolgáltató Nyrt had Ft2.52m of debt, up from Ft2.31m a year ago. Click the image for more detail. However, its balance sheet shows it holds Ft33.1m in cash, so it actually has Ft30.6m net cash.
How Healthy Is Nordtelekom Távközlési Szolgáltató Nyrt’s Balance Sheet?
The latest balance sheet data shows that Nordtelekom Távközlési Szolgáltató Nyrt had liabilities of Ft20.7m due within a year, and liabilities of Ft73.7m falling due after that. Offsetting these obligations, it had cash of Ft33.1m as well as receivables valued at Ft269.8m due within 12 months. So it actually has Ft208.5m more liquid assets than total liabilities.
This surplus suggests that Nordtelekom Távközlési Szolgáltató Nyrt has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Nordtelekom Távközlési Szolgáltató Nyrt has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Nordtelekom Távközlési Szolgáltató Nyrt’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.
In the last year Nordtelekom Távközlési Szolgáltató Nyrt managed to grow its revenue by 37%, to Ft40m. Shareholders probably have their fingers crossed that it can grow its way to profits.
So How Risky Is Nordtelekom Távközlési Szolgáltató Nyrt?
Statistically speaking companies that lose money are riskier than those that make money. And we do note that Nordtelekom Távközlési Szolgáltató Nyrt had negative earnings before interest and tax (EBIT), over the last year. Indeed, in that time it burnt through Ft100m of cash and made a loss of Ft123m. Given it only has net cash of Ft33m, the company may need to raise more capital if it doesn’t reach break-even soon. Nordtelekom Távközlési Szolgáltató Nyrt’s revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. For riskier companies like Nordtelekom Távközlési Szolgáltató Nyrt I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.
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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