Does Benefit Systems (WSE:BFT) Have A Healthy Balance Sheet?

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 Benefit Systems S.A. (WSE:BFT) does use debt in its business. 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. 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. 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.

View our latest analysis for Benefit Systems

What Is Benefit Systems's Net Debt?

The image below, which you can click on for greater detail, shows that Benefit Systems had debt of zł93.5m at the end of September 2022, a reduction from zł223.2m over a year. However, its balance sheet shows it holds zł143.4m in cash, so it actually has zł49.9m net cash.

A Look At Benefit Systems' Liabilities

According to the last reported balance sheet, Benefit Systems had liabilities of zł520.9m due within 12 months, and liabilities of zł883.9m due beyond 12 months. Offsetting these obligations, it had cash of zł143.4m as well as receivables valued at zł182.0m due within 12 months. So it has liabilities totalling zł1.08b more than its cash and near-term receivables, combined.

Benefit Systems has a market capitalization of zł2.86b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Benefit Systems boasts net cash, so it's fair to say it does not have a heavy debt load!

Although Benefit Systems made a loss at the EBIT level, last year, it was also good to see that it generated zł193m in EBIT over the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. 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're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Benefit Systems 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, Benefit Systems actually produced more free cash flow than EBIT over the last year. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While Benefit Systems does have more liabilities than liquid assets, it also has net cash of zł49.9m. And it impressed us with free cash flow of zł244m, being 126% of its EBIT. So we are not troubled with Benefit Systems's debt use. 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 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.