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

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Spyrosoft Spólka Akcyjna (WSE:SPR) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Spyrosoft Spólka Akcyjna

What Is Spyrosoft Spólka Akcyjna's Debt?

As you can see below, Spyrosoft Spólka Akcyjna had zł7.61m of debt at September 2024, down from zł20.7m a year prior. But on the other hand it also has zł53.9m in cash, leading to a zł46.3m net cash position.

How Strong Is Spyrosoft Spólka Akcyjna's Balance Sheet?

We can see from the most recent balance sheet that Spyrosoft Spólka Akcyjna had liabilities of zł68.0m falling due within a year, and liabilities of zł18.0m due beyond that. Offsetting this, it had zł53.9m in cash and zł96.2m in receivables that were due within 12 months. So it can boast zł64.1m 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. Succinctly put, Spyrosoft Spólka Akcyjna boasts net cash, so it's fair to say it does not have a heavy debt load!

On the other hand, Spyrosoft Spólka Akcyjna saw its EBIT drop by 2.7% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. There's no doubt that we learn most about debt from the balance sheet. 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 company can only pay off debt with cold hard cash, not accounting profits. While Spyrosoft Spólka Akcyjna has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Spyrosoft Spólka Akcyjna produced sturdy free cash flow equating to 73% of its EBIT, about what we'd expect. 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 zł46.3m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of zł45m, being 73% of its EBIT. So we don't think Spyrosoft Spólka Akcyjna's use of debt is risky. 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.

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.