These 4 Measures Indicate That Spyrosoft Spólka Akcyjna (WSE:SPR) Is Using Debt Safely

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, Spyrosoft Spólka Akcyjna (WSE:SPR) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Spyrosoft Spólka Akcyjna

How Much Debt Does Spyrosoft Spólka Akcyjna Carry?

As you can see below, at the end of March 2023, Spyrosoft Spólka Akcyjna had zł11.3m of debt, up from zł1.00m a year ago. Click the image for more detail. However, its balance sheet shows it holds zł42.8m in cash, so it actually has zł31.5m net cash.

A Look At Spyrosoft Spólka Akcyjna's Liabilities

According to the last reported balance sheet, Spyrosoft Spólka Akcyjna had liabilities of zł68.1m due within 12 months, and liabilities of zł19.3m due beyond 12 months. Offsetting these obligations, it had cash of zł42.8m as well as receivables valued at zł86.3m due within 12 months. So it actually has zł41.7m more liquid assets than total liabilities.

This short term liquidity is a sign that Spyrosoft Spólka Akcyjna could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Spyrosoft Spólka Akcyjna has more cash than debt is arguably a good indication that it can manage its debt safely.

On top of that, Spyrosoft Spólka Akcyjna grew its EBIT by 84% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Spyrosoft Spólka Akcyjna will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Spyrosoft Spólka 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, Spyrosoft Spólka Akcyjna recorded free cash flow worth 58% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Spyrosoft Spólka Akcyjna has net cash of zł31.5m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 84% over the last year. So is Spyrosoft Spólka Akcyjna's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Spyrosoft Spólka Akcyjna, you may well want to click here to check an interactive graph of its earnings per share history.

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.

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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.