We Think Kino Polska TV Spolka Akcyjna (WSE:KPL) Can Manage Its Debt With Ease

Warren Buffett famously said, '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. As with many other companies Kino Polska TV Spolka Akcyjna (WSE:KPL) makes use of debt. But should shareholders be worried about its use of debt?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out 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 zł18.2m at the end of September 2021, a reduction from zł60.9m over a year. However, its balance sheet shows it holds zł20.4m in cash, so it actually has zł2.22m net cash.

How Strong 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 zł62.7m falling due within a year, and liabilities of zł28.8m due beyond that. On the other hand, it had cash of zł20.4m and zł68.2m worth of receivables due within a year. So its liabilities total zł2.98m more than the combination of its cash and short-term receivables.

Having regard to Kino Polska TV Spolka Akcyjna's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the zł330.0m company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Kino Polska TV Spolka Akcyjna boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Kino Polska TV Spolka Akcyjna has boosted its EBIT by 84%, thus reducing the spectre of future debt repayments. 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 Kino Polska TV Spolka Akcyjna 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 company can only pay off debt with cold hard cash, not accounting profits. 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. Over the most recent three years, Kino Polska TV Spolka Akcyjna recorded free cash flow worth 76% of its EBIT, which is around normal, given free cash flow excludes interest and tax. 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 look at a company's total liabilities, it is very reassuring that Kino Polska TV Spolka Akcyjna has zł2.22m in net cash. And it impressed us with its EBIT growth of 84% 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Kino Polska TV Spolka Akcyjna you should know about.

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.