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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Eckert & Ziegler Strahlen- und Medizintechnik AG (ETR:EUZ) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Eckert & Ziegler Strahlen- und Medizintechnik
What Is Eckert & Ziegler Strahlen- und Medizintechnik's Net Debt?
The image below, which you can click on for greater detail, shows that at June 2019 Eckert & Ziegler Strahlen- und Medizintechnik had debt of €19.2m, up from €1.00m in one year. However, it does have €57.1m in cash offsetting this, leading to net cash of €37.9m.
How Strong Is Eckert & Ziegler Strahlen- und Medizintechnik's Balance Sheet?
According to the last reported balance sheet, Eckert & Ziegler Strahlen- und Medizintechnik had liabilities of €31.2m due within 12 months, and liabilities of €87.7m due beyond 12 months. Offsetting this, it had €57.1m in cash and €26.7m in receivables that were due within 12 months. So it has liabilities totalling €35.2m more than its cash and near-term receivables, combined.
Since publicly traded Eckert & Ziegler Strahlen- und Medizintechnik shares are worth a total of €820.5m, it seems unlikely that this level of liabilities would be a major threat. 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, Eckert & Ziegler Strahlen- und Medizintechnik also has more cash than debt, so we're pretty confident it can manage its debt safely.