Esprinet (BIT:PRT) Has A Rock Solid 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.' 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 Esprinet S.p.A. (BIT:PRT) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Esprinet

How Much Debt Does Esprinet Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2021 Esprinet had €200.3m of debt, an increase on €154.9m, over one year. However, it does have €219.7m in cash offsetting this, leading to net cash of €19.5m.

How Healthy Is Esprinet's Balance Sheet?

The latest balance sheet data shows that Esprinet had liabilities of €968.9m due within a year, and liabilities of €231.3m falling due after that. On the other hand, it had cash of €219.7m and €615.3m worth of receivables due within a year. So it has liabilities totalling €365.2m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Esprinet has a market capitalization of €758.2m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Esprinet boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Esprinet has boosted its EBIT by 50%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Esprinet can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Esprinet has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Esprinet actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing up

While Esprinet does have more liabilities than liquid assets, it also has net cash of €19.5m. And it impressed us with free cash flow of €118m, being 176% of its EBIT. So is Esprinet's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Esprinet you should be aware of.

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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This article by Simply Wall St is general in nature. 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.
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