These 4 Measures Indicate That Atende (WSE:ATD) Is Using Debt Reasonably Well

Warren Buffett famously said, '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. We can see that Atende S.A. (WSE:ATD) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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 Atende

How Much Debt Does Atende Carry?

As you can see below, at the end of December 2022, Atende had zł6.81m of debt, up from zł5.86m a year ago. Click the image for more detail. But on the other hand it also has zł17.2m in cash, leading to a zł10.4m net cash position.

How Strong Is Atende's Balance Sheet?

The latest balance sheet data shows that Atende had liabilities of zł75.6m due within a year, and liabilities of zł13.3m falling due after that. On the other hand, it had cash of zł17.2m and zł67.9m worth of receivables due within a year. So it has liabilities totalling zł3.85m more than its cash and near-term receivables, combined.

Since publicly traded Atende shares are worth a total of zł109.0m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Atende also has more cash than debt, so we're pretty confident it can manage its debt safely.

We also note that Atende improved its EBIT from a last year's loss to a positive zł3.1m. There's no doubt that we learn most about debt from the balance sheet. But it is Atende's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Atende 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 year, Atende actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

We could understand if investors are concerned about Atende's liabilities, but we can be reassured by the fact it has has net cash of zł10.4m. And it impressed us with free cash flow of zł9.3m, being 304% of its EBIT. So is Atende's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for Atende (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.