These 4 measures indicate that Openjobmetis (BIT:OJM) uses debt safely

Warren Buffett said: “Volatility is far from synonymous with risk. When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. We can see that Openjobmetis SpA (BIT:OJM) uses debt in its business. But the real question is whether this debt makes the business risky.

When is debt dangerous?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. When we look at debt levels, we first consider cash and debt levels, together.

Discover our latest analyzes for Openjobmetis

What is Openjobmetis’ debt?

As you can see below, at the end of September 2021, Openjobmetis had 39.6 million euros in debt, compared to 20.1 million euros a year ago. Click on the image for more details. On the other hand, he has €16.6 million in cash, resulting in a net debt of around €23.0 million.

BIT: OJM Debt to Equity March 5, 2022

How strong is Openjobmetis’ balance sheet?

According to the last published balance sheet, Openjobmetis had liabilities of 167.6 million euros at less than 12 months and liabilities of 23.3 million euros at more than 12 months. On the other hand, it had €16.6 million in cash and €164.3 million in receivables at less than one year. Thus, its liabilities outweigh the sum of its cash and (short-term) receivables by €9.97 million.

Given that Openjobmetis has a market cap of €119.7 million, it’s hard to believe that these liabilities pose a big threat. But there are enough liabilities that we certainly recommend that shareholders continue to monitor the balance sheet in the future.

In order to assess a company’s debt relative to its earnings, we calculate its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and its earnings before interest and taxes (EBIT) divided by its expenses. interest (its interest coverage). The advantage of this approach is that we consider both the absolute amount of debt (with net debt to EBITDA) and the actual interest expense associated with that debt (with its interest coverage ratio ).

Openjobmetis has a low net debt to EBITDA ratio of only 1.3. And its EBIT easily covers its interest charges, being 25.5 times higher. One could therefore say that he is no more threatened by his debt than an elephant is by a mouse. On top of that, we are pleased to report that Openjobmetis has increased its EBIT by 75%, reducing the specter of future debt repayments. There is no doubt that we learn the most about debt from the balance sheet. But it is ultimately the company’s future profitability that will decide whether Openjobmetis can strengthen its balance sheet over time. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Finally, while the taxman may love accounting profits, lenders only accept cash. We must therefore clearly examine whether this EBIT generates a corresponding free cash flow. Fortunately for all shareholders, Openjobmetis has actually produced more free cash flow than EBIT over the past three years. This kind of high cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Our point of view

Fortunately, Openjobmetis’ impressive interest coverage means it has the upper hand on its debt. And the good news does not stop there, since its conversion of EBIT into free cash flow also confirms this impression! Overall, we don’t think Openjobmetis is taking bad risks, as its leverage seems modest. So we are not worried about using a little leverage on the balance sheet. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks reside on the balance sheet, far from it. Example: we have identified 2 warning signs for Openjobmetis you should be aware of, and 1 of them is potentially serious.

In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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