Metallus (NYSE:MTUS) Seems To Use Debt Quite Sensibly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Metallus Inc. (NYSE:MTUS) makes use of debt. But should shareholders be worried about its use of debt?

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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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Metallus Carry?

You can click the graphic below for the historical numbers, but it shows that Metallus had US$5.40m of debt in December 2024, down from US$13.2m, one year before. But it also has US$240.7m in cash to offset that, meaning it has US$235.3m net cash.

How Healthy Is Metallus' Balance Sheet?

The latest balance sheet data shows that Metallus had liabilities of US$281.5m due within a year, and liabilities of US$144.7m falling due after that. Offsetting this, it had US$240.7m in cash and US$90.8m in receivables that were due within 12 months. So it has liabilities totalling US$94.7m more than its cash and near-term receivables, combined.

Of course, Metallus has a market capitalization of US$579.4m, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Metallus also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Metallus

It is just as well that Metallus's load is not too heavy, because its EBIT was down 92% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Metallus can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts .

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Metallus 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. During the last three years, Metallus generated free cash flow amounting to a very robust 87% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While Metallus does have more liabilities than liquid assets, it also has net cash of US$235.3m. And it impressed us with free cash flow of -US$24m, being 87% of its EBIT. So we don't have any problem with Metallus's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Metallus , and understanding them should be part of your investment process.

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.