Is Astarta Holding (WSE:AST) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Astarta Holding PLC (WSE:AST) makes use of debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Astarta Holding's Debt?

The image below, which you can click on for greater detail, shows that Astarta Holding had debt of ₴1.18b at the end of December 2024, a reduction from ₴2.20b over a year. However, it does have ₴2.18b in cash offsetting this, leading to net cash of ₴992.7m.

A Look At Astarta Holding's Liabilities

We can see from the most recent balance sheet that Astarta Holding had liabilities of ₴3.35b falling due within a year, and liabilities of ₴5.35b due beyond that. Offsetting this, it had ₴2.18b in cash and ₴3.10b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₴3.43b.

This deficit isn't so bad because Astarta Holding is worth ₴14.7b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Astarta Holding also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Astarta Holding

Also relevant is that Astarta Holding has grown its EBIT by a very respectable 23% in the last year, thus enhancing its ability to pay down debt. 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 Astarta 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Astarta Holding 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. Over the most recent three years, Astarta Holding recorded free cash flow worth 66% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

Although Astarta Holding's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of ₴992.7m. And it impressed us with its EBIT growth of 23% over the last year. So we don't have any problem with Astarta Holding's use of debt. 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 - Astarta Holding has 1 warning sign we think you should be aware of.

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.