These 4 measures indicate that the Zehnder Group (VTX: ZEHN) is using its debt safely

Warren Buffett said: “Volatility is far from synonymous with risk”. So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. Above all, Zehnder Group AG (VTX: ZEHN) carries the debt. But the real question is whether this debt makes the business risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. When we think of a business’s use of debt, we first look at cash flow and debt together.

Discover our latest analysis for the Zehnder Group

What is the net debt of the Zehnder group?

You can click on the graph below for historical figures, but it shows that Zehnder Group had € 10.4 million in debt in June 2021, down from € 18.5 million a year earlier. But on the other hand, it also has 121.1 million euros of cash, which leads to a net cash position of 110.7 million euros.

SWX: ZEHN History of debt to equity December 15, 2021

A look at the liabilities of the Zehnder group

The most recent balance sheet shows that Zehnder Group had liabilities of 154.5 million euros due within one year and liabilities of 34.2 million euros due beyond. On the other hand, it had cash of € 121.1 million and € 148.3 million in receivables within one year. So he actually has 80.7 million euros Following liquid assets as total liabilities.

This short-term liquidity is a sign that Zehnder Group could probably pay off its debt easily, as its balance sheet is far from tight. Put simply, the fact that Zehnder Group has more liquidity than debt is arguably a good indication that it can manage its debt safely.

On top of that, we are happy to report that Zehnder Group has increased its EBIT by 69%, reducing the specter of future debt repayments. When analyzing debt levels, the balance sheet is the obvious place to start. But ultimately, the company’s future profitability will decide whether Zehnder Group can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Finally, while the IRS may love accounting profits, lenders only accept hard cash. The Zehnder Group may have net cash on the balance sheet, but it is always interesting to consider the extent to which the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its ability to manage debt. Over the past three years, Zehnder Group has actually generated more free cash flow than EBIT. This kind of cash conversion makes us as excited as the crowd when the beat drops at a Daft Punk concert.

In summary

While it still makes sense to investigate a company’s debt, in this case Zehnder Group has € 110.7 million in net cash and a decent balance sheet. The icing on the cake is that he converted 106% of that EBIT into free cash flow, bringing in 80 million euros. We therefore do not believe that Zehnder Group’s use of debt is risky. On top of most other metrics, we think it’s important to track how quickly earnings per share are growing, if at all. If you have understood this as well, you are in luck because today you can view this interactive graph of historical Zehnder Group earnings per share for free.

Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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