These 4 Measures Indicate That Astarta Holding (WSE:AST) Is Using Debt Extensively

Warren Buffett famously said, '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. Importantly, Astarta Holding PLC (WSE:AST) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Astarta Holding

What Is Astarta Holding's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Astarta Holding had ₴1.93b of debt, an increase on ₴1.79b, over one year. However, its balance sheet shows it holds ₴2.44b in cash, so it actually has ₴515.1m net cash.

How Healthy Is Astarta Holding's Balance Sheet?

We can see from the most recent balance sheet that Astarta Holding had liabilities of ₴3.22b falling due within a year, and liabilities of ₴5.67b due beyond that. Offsetting these obligations, it had cash of ₴2.44b as well as receivables valued at ₴2.68b due within 12 months. So it has liabilities totalling ₴3.76b more than its cash and near-term receivables, combined.

Astarta Holding has a market capitalization of ₴7.81b, 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. 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.

Importantly, Astarta Holding's EBIT fell a jaw-dropping 26% in the last twelve months. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. 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 Astarta Holding'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. 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. Looking at the most recent three years, Astarta Holding recorded free cash flow of 48% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While Astarta Holding does have more liabilities than liquid assets, it also has net cash of ₴515.1m. So while Astarta Holding does not have a great balance sheet, it's certainly not too bad. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Astarta Holding that you should be aware of before investing here.

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.

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