Does Asseco Poland (WSE:ACP) Have A Healthy Balance Sheet?

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. Importantly, Asseco Poland S.A. (WSE:ACP) does carry debt. But should shareholders be worried about its use of debt?

We check all companies for important risks. See what we found for Asseco Poland in our free report.

What Risk Does Debt Bring?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Asseco Poland's Net Debt?

As you can see below, Asseco Poland had zł2.94b of debt at December 2024, down from zł3.34b a year prior. However, it does have zł3.30b in cash offsetting this, leading to net cash of zł363.5m.

How Healthy Is Asseco Poland's Balance Sheet?

According to the last reported balance sheet, Asseco Poland had liabilities of zł6.97b due within 12 months, and liabilities of zł3.70b due beyond 12 months. Offsetting this, it had zł3.30b in cash and zł5.51b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by zł1.87b.

Of course, Asseco Poland has a market capitalization of zł9.79b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Asseco Poland boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Asseco Poland

One way Asseco Poland could vanquish its debt would be if it stops borrowing more but continues to grow EBIT at around 10%, as it did over the last year. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept 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. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

Although Asseco Poland's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of zł363.5m. And it impressed us with free cash flow of zł2.0b, being 112% of its EBIT. So we don't think Asseco Poland's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Asseco Poland, you may well want to click here to check an interactive graph of its earnings per share history.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.