S.N. Nuclearelectrica (BVB:SNN) Has A Rock Solid Balance Sheet

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.' 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. As with many other companies S.N. Nuclearelectrica S.A. (BVB:SNN) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for S.N. Nuclearelectrica

What Is S.N. Nuclearelectrica's Debt?

You can click the graphic below for the historical numbers, but it shows that S.N. Nuclearelectrica had RON298.3m of debt in December 2021, down from RON502.5m, one year before. But it also has RON2.65b in cash to offset that, meaning it has RON2.35b net cash.

How Healthy Is S.N. Nuclearelectrica's Balance Sheet?

According to the last reported balance sheet, S.N. Nuclearelectrica had liabilities of RON675.4m due within 12 months, and liabilities of RON544.7m due beyond 12 months. On the other hand, it had cash of RON2.65b and RON220.5m worth of receivables due within a year. So it can boast RON1.65b more liquid assets than total liabilities.

This surplus suggests that S.N. Nuclearelectrica has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that S.N. Nuclearelectrica has more cash than debt is arguably a good indication that it can manage its debt safely.

On top of that, S.N. Nuclearelectrica grew its EBIT by 53% 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 it is future earnings, more than anything, that will determine S.N. Nuclearelectrica's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While S.N. Nuclearelectrica 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, S.N. Nuclearelectrica generated free cash flow amounting to a very robust 98% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing up

While it is always sensible to investigate a company's debt, in this case S.N. Nuclearelectrica has RON2.35b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of RON796m, being 98% of its EBIT. The bottom line is that we do not find S.N. Nuclearelectrica's debt levels at all concerning. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for S.N. Nuclearelectrica (1 makes us a bit uncomfortable) you should be aware of.

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.