Here's Why Cementir Holding (BIT:CEM) Can Manage Its Debt Responsibly

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Cementir Holding N.V. (BIT:CEM) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Cementir Holding

What Is Cementir Holding's Debt?

You can click the graphic below for the historical numbers, but it shows that Cementir Holding had €150.9m of debt in June 2024, down from €210.7m, one year before. However, it does have €278.8m in cash offsetting this, leading to net cash of €127.8m.

How Healthy Is Cementir Holding's Balance Sheet?

The latest balance sheet data shows that Cementir Holding had liabilities of €436.7m due within a year, and liabilities of €384.7m falling due after that. Offsetting these obligations, it had cash of €278.8m as well as receivables valued at €258.7m due within 12 months. So it has liabilities totalling €283.9m more than its cash and near-term receivables, combined.

Of course, Cementir Holding has a market capitalization of €1.50b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Cementir Holding boasts net cash, so it's fair to say it does not have a heavy debt load!

Also good is that Cementir Holding grew its EBIT at 11% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Cementir Holding 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Cementir Holding 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. During the last three years, Cementir Holding produced sturdy free cash flow equating to 64% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While Cementir Holding does have more liabilities than liquid assets, it also has net cash of €127.8m. So is Cementir Holding's debt a risk? It doesn't seem so to us. We'd be motivated to research the stock further if we found out that Cementir Holding insiders have bought shares recently. If you would too, then you're in luck, since today we're sharing our list of reported insider transactions for free.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.