S.C. Helios (BVB:HEAL) Seems To Use Debt Rather Sparingly

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that S.C. Helios S.A. (BVB:HEAL) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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 think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does S.C. Helios Carry?

You can click the graphic below for the historical numbers, but it shows that S.C. Helios had RON9.59m of debt in December 2024, down from RON10.3m, one year before. But on the other hand it also has RON12.0m in cash, leading to a RON2.42m net cash position.

A Look At S.C. Helios' Liabilities

Zooming in on the latest balance sheet data, we can see that S.C. Helios had liabilities of RON11.2m due within 12 months and liabilities of RON126.0k due beyond that. Offsetting these obligations, it had cash of RON12.0m as well as receivables valued at RON193.6k due within 12 months. So it can boast RON845.3k more liquid assets than total liabilities.

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

View our latest analysis for S.C. Helios

On top of that, S.C. Helios grew its EBIT by 78% 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 you can't view debt in total isolation; since S.C. Helios 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 S.C. Helios 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. Over the last three years, S.C. Helios actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case S.C. Helios has RON2.42m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 130% of that EBIT to free cash flow, bringing in RON5.8m. So is S.C. Helios's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with S.C. Helios .

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.