Benefit Systems (WSE:BFT) 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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Benefit Systems S.A. (WSE:BFT) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Benefit Systems

What Is Benefit Systems's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Benefit Systems had zł55.8m of debt in March 2024, down from zł76.8m, one year before. However, its balance sheet shows it holds zł561.4m in cash, so it actually has zł505.5m net cash.

How Healthy Is Benefit Systems' Balance Sheet?

The latest balance sheet data shows that Benefit Systems had liabilities of zł815.5m due within a year, and liabilities of zł1.02b falling due after that. Offsetting these obligations, it had cash of zł561.4m as well as receivables valued at zł204.8m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by zł1.07b.

Of course, Benefit Systems has a market capitalization of zł8.43b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Benefit Systems also has more cash than debt, so we're pretty confident it can manage its debt safely.

Even more impressive was the fact that Benefit Systems grew its EBIT by 127% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Benefit Systems's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Benefit Systems 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. Happily for any shareholders, Benefit Systems 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

Although Benefit Systems's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of zł505.5m. And it impressed us with free cash flow of zł726m, being 150% of its EBIT. So is Benefit Systems's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Benefit Systems, you may well want to click here to check an interactive graph of its earnings per share history.

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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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.