These 4 Measures Indicate That Sygnity (WSE:SGN) Is Using Debt Safely

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Sygnity S.A. (WSE:SGN) makes use of debt. But is this debt a concern to shareholders?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Sygnity's Net Debt?

The image below, which you can click on for greater detail, shows that Sygnity had debt of zł9.14m at the end of March 2025, a reduction from zł24.1m over a year. But on the other hand it also has zł132.1m in cash, leading to a zł122.9m net cash position.

A Look At Sygnity's Liabilities

According to the last reported balance sheet, Sygnity had liabilities of zł104.1m due within 12 months, and liabilities of zł8.49m due beyond 12 months. On the other hand, it had cash of zł132.1m and zł46.8m worth of receivables due within a year. So it actually has zł66.3m more liquid assets than total liabilities.

This surplus suggests that Sygnity has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Sygnity has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Sygnity

In addition to that, we're happy to report that Sygnity has boosted its EBIT by 43%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Sygnity's ability to maintain a healthy balance sheet going forward. 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. Sygnity 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, Sygnity 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

While we empathize with investors who find debt concerning, you should keep in mind that Sygnity has net cash of zł122.9m, as well as more liquid assets than liabilities. The cherry on top was that in converted 139% of that EBIT to free cash flow, bringing in zł80m. So we don't think Sygnity's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Sygnity's earnings per share history for free.

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.