Is Enter Air Sp. z o.o (WSE:ENT) A Risky Investment?

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 Enter Air Sp. z o.o. (WSE:ENT) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 Enter Air Sp. z o.o

How Much Debt Does Enter Air Sp. z o.o Carry?

The image below, which you can click on for greater detail, shows that Enter Air Sp. z o.o had debt of zł192.1m at the end of June 2023, a reduction from zł307.0m over a year. However, it does have zł368.3m in cash offsetting this, leading to net cash of zł176.2m.

How Healthy Is Enter Air Sp. z o.o's Balance Sheet?

According to the last reported balance sheet, Enter Air Sp. z o.o had liabilities of zł850.9m due within 12 months, and liabilities of zł1.31b due beyond 12 months. On the other hand, it had cash of zł368.3m and zł259.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by zł1.53b.

This deficit casts a shadow over the zł803.5m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Enter Air Sp. z o.o would likely require a major re-capitalisation if it had to pay its creditors today. Enter Air Sp. z o.o boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total.

It is well worth noting that Enter Air Sp. z o.o's EBIT shot up like bamboo after rain, gaining 69% in the last twelve months. That'll make it easier to manage 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 Enter Air Sp. z o.o will need earnings to service that debt. 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 company can only pay off debt with cold hard cash, not accounting profits. Enter Air Sp. z o.o 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 two years, Enter Air Sp. z o.o 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 Enter Air Sp. z o.o does have more liabilities than liquid assets, it also has net cash of zł176.2m. And it impressed us with free cash flow of zł432m, being 242% of its EBIT. So we are not troubled with Enter Air Sp. z o.o's debt use. 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 Enter Air Sp. z o.o has 2 warning signs (and 1 which is potentially serious) we think you should know about.

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.