Is Stalprodukt (WSE:STP) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that Stalprodukt S.A. (WSE:STP) does have debt on its balance sheet. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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 Stalprodukt

How Much Debt Does Stalprodukt Carry?

As you can see below, at the end of September 2024, Stalprodukt had zł16.1m of debt, up from zł15.2m a year ago. Click the image for more detail. But it also has zł964.3m in cash to offset that, meaning it has zł948.2m net cash.

How Healthy Is Stalprodukt's Balance Sheet?

The latest balance sheet data shows that Stalprodukt had liabilities of zł685.1m due within a year, and liabilities of zł432.7m falling due after that. Offsetting this, it had zł964.3m in cash and zł778.6m in receivables that were due within 12 months. So it can boast zł625.1m more liquid assets than total liabilities.

This surplus liquidity suggests that Stalprodukt's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Stalprodukt boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Stalprodukt 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.

In the last year Stalprodukt had a loss before interest and tax, and actually shrunk its revenue by 24%, to zł3.8b. To be frank that doesn't bode well.

So How Risky Is Stalprodukt?

While Stalprodukt lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow zł100m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Stalprodukt you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.