Is Kino Polska TV Spolka Akcyjna (WSE:KPL) A Risky Investment?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Kino Polska TV Spolka Akcyjna (WSE:KPL) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Kino Polska TV Spolka Akcyjna

How Much Debt Does Kino Polska TV Spolka Akcyjna Carry?

You can click the graphic below for the historical numbers, but it shows that Kino Polska TV Spolka Akcyjna had zł12.6m of debt in September 2022, down from zł18.2m, one year before. But it also has zł26.9m in cash to offset that, meaning it has zł14.3m net cash.

How Healthy Is Kino Polska TV Spolka Akcyjna's Balance Sheet?

We can see from the most recent balance sheet that Kino Polska TV Spolka Akcyjna had liabilities of zł68.6m falling due within a year, and liabilities of zł14.4m due beyond that. On the other hand, it had cash of zł26.9m and zł88.7m worth of receivables due within a year. So it can boast zł32.6m more liquid assets than total liabilities.

This surplus suggests that Kino Polska TV Spolka Akcyjna has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Kino Polska TV Spolka Akcyjna has more cash than debt is arguably a good indication that it can manage its debt safely.

Also positive, Kino Polska TV Spolka Akcyjna grew its EBIT by 25% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Kino Polska TV Spolka Akcyjna can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Kino Polska TV Spolka Akcyjna 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. During the last three years, Kino Polska TV Spolka Akcyjna produced sturdy free cash flow equating to 59% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Kino Polska TV Spolka Akcyjna has zł14.3m in net cash and a decent-looking balance sheet. And we liked the look of last year's 25% year-on-year EBIT growth. So we don't think Kino Polska TV Spolka Akcyjna's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 2 warning signs we've spotted with Kino Polska TV Spolka Akcyjna .

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.