Sciuker Frames (BIT:SCK) Has A Pretty Healthy Balance Sheet

Simply Wall St
November 17, 2021
Source: Shutterstock

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Sciuker Frames S.p.A. (BIT:SCK) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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 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, 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 Sciuker Frames

What Is Sciuker Frames's Net Debt?

As you can see below, at the end of June 2021, Sciuker Frames had €23.9m of debt, up from €8.82m a year ago. Click the image for more detail. But it also has €34.0m in cash to offset that, meaning it has €10.0m net cash.

BIT:SCK Debt to Equity History November 18th 2021

A Look At Sciuker Frames' Liabilities

The latest balance sheet data shows that Sciuker Frames had liabilities of €25.8m due within a year, and liabilities of €25.4m falling due after that. On the other hand, it had cash of €34.0m and €15.5m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €1.77m.

This state of affairs indicates that Sciuker Frames' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €173.3m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Sciuker Frames boasts net cash, so it's fair to say it does not have a heavy debt load!

Notably, Sciuker Frames's EBIT launched higher than Elon Musk, gaining a whopping 1,003% on last year. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Sciuker Frames's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Sciuker Frames 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. Over the last three years, Sciuker Frames saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Sciuker Frames has €10.0m in net cash. And it impressed us with its EBIT growth of 1,003% over the last year. So we are not troubled with Sciuker Frames's debt use. 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. For example, we've discovered 4 warning signs for Sciuker Frames (1 is significant!) that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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