We Think Spyrosoft Spólka Akcyjna (WSE:SPR) Can Manage Its Debt With Ease

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. 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 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. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Spyrosoft Spólka Akcyjna

What Is Spyrosoft Spólka Akcyjna's Debt?

As you can see below, at the end of June 2023, Spyrosoft Spólka Akcyjna had zł17.3m of debt, up from zł14.3m a year ago. Click the image for more detail. But on the other hand it also has zł38.2m in cash, leading to a zł20.9m net cash position.

How Strong Is Spyrosoft Spólka Akcyjna's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Spyrosoft Spólka Akcyjna had liabilities of zł66.0m due within 12 months and liabilities of zł17.9m due beyond that. Offsetting these obligations, it had cash of zł38.2m as well as receivables valued at zł77.1m due within 12 months. So it actually has zł31.4m more liquid assets than total liabilities.

This surplus suggests that Spyrosoft Spólka Akcyjna has a conservative balance sheet, and could probably eliminate its debt without much difficulty. 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 35% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But it is Spyrosoft Spólka Akcyjna's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

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 zł20.9m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 35% over the last year. So we don't think Spyrosoft Spólka Akcyjna'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 Spyrosoft Spólka Akcyjna's earnings per share history for free.

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.