Here's Why Kazan Organichesky sintez (MCX:KZOS) Can Manage Its Debt Responsibly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 note that Kazan Public Joint Stock Company Organichesky sintez (MCX:KZOS) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Kazan Organichesky sintez

What Is Kazan Organichesky sintez's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2021 Kazan Organichesky sintez had ₽890.0m of debt, an increase on none, over one year. However, its balance sheet shows it holds ₽6.75b in cash, so it actually has ₽5.86b net cash.

How Strong Is Kazan Organichesky sintez's Balance Sheet?

The latest balance sheet data shows that Kazan Organichesky sintez had liabilities of ₽6.09b due within a year, and liabilities of ₽3.31b falling due after that. On the other hand, it had cash of ₽6.75b and ₽2.52b worth of receivables due within a year. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Kazan Organichesky sintez's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the ₽182.8b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Kazan Organichesky sintez boasts net cash, so it's fair to say it does not have a heavy debt load!

Even more impressive was the fact that Kazan Organichesky sintez grew its EBIT by 157% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But it is Kazan Organichesky sintez's earnings that will influence how the balance sheet holds up in the future. 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 Kazan Organichesky sintez 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. In the last three years, Kazan Organichesky sintez's free cash flow amounted to 32% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Kazan Organichesky sintez has ₽5.86b in net cash. And it impressed us with its EBIT growth of 157% over the last year. So is Kazan Organichesky sintez'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 learn about the 2 warning signs we've spotted with Kazan Organichesky sintez (including 1 which can't be ignored) .

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.

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.

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