Kino Polska TV Spolka Akcyjna (WSE:KPL) Seems To Use Debt Rather Sparingly

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.' 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. Importantly, Kino Polska TV Spolka Akcyjna (WSE:KPL) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Kino Polska TV Spolka Akcyjna

What Is Kino Polska TV Spolka Akcyjna's Debt?

The image below, which you can click on for greater detail, shows that Kino Polska TV Spolka Akcyjna had debt of zł14.6m at the end of March 2022, a reduction from zł41.3m over a year. However, its balance sheet shows it holds zł40.6m in cash, so it actually has zł26.0m net cash.

A Look At Kino Polska TV Spolka Akcyjna's Liabilities

Zooming in on the latest balance sheet data, we can see that Kino Polska TV Spolka Akcyjna had liabilities of zł75.9m due within 12 months and liabilities of zł23.5m due beyond that. Offsetting these obligations, it had cash of zł40.6m as well as receivables valued at zł87.0m due within 12 months. So it actually has zł28.2m 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.

On top of that, Kino Polska TV Spolka Akcyjna grew its EBIT by 79% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. 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, a company can only pay off debt with cold hard cash, not accounting profits. While Kino Polska TV Spolka Akcyjna 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. During the last three years, Kino Polska TV Spolka Akcyjna produced sturdy free cash flow equating to 75% 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 we empathize with investors who find debt concerning, you should keep in mind that Kino Polska TV Spolka Akcyjna has net cash of zł26.0m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 79% over the last year. So we don't think Kino Polska TV Spolka Akcyjna's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign 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.