Asseco Poland (WSE:ACP) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Asseco Poland S.A. (WSE:ACP) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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.

See our latest analysis for Asseco Poland

What Is Asseco Poland's Net Debt?

As you can see below, at the end of September 2021, Asseco Poland had zł2.69b of debt, up from zł2.35b a year ago. Click the image for more detail. But on the other hand it also has zł2.72b in cash, leading to a zł28.6m net cash position.

How Healthy Is Asseco Poland's Balance Sheet?

The latest balance sheet data shows that Asseco Poland had liabilities of zł4.86b due within a year, and liabilities of zł3.23b falling due after that. Offsetting these obligations, it had cash of zł2.72b as well as receivables valued at zł4.12b due within 12 months. So its liabilities total zł1.24b more than the combination of its cash and short-term receivables.

Of course, Asseco Poland has a market capitalization of zł6.87b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Asseco Poland boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, Asseco Poland grew its EBIT by 27% in the last year, and that should make it easier to pay down debt, going forward. 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 Asseco Poland 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Asseco Poland 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 last three years, Asseco Poland actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing up

While Asseco Poland does have more liabilities than liquid assets, it also has net cash of zł28.6m. The cherry on top was that in converted 113% of that EBIT to free cash flow, bringing in zł1.4b. So is Asseco Poland's debt a risk? It doesn't seem so to us. Given Asseco Poland has a strong balance sheet is profitable and pays a dividend, it would be good to know how fast its dividends are growing, if at all. You can find out instantly by clicking this link.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.