The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Jungfraubahn Holding AG (VTX:JFN) does carry debt. But is this debt a concern to shareholders?
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 Jungfraubahn Holding
What Is Jungfraubahn Holding's Debt?
As you can see below, at the end of December 2018, Jungfraubahn Holding had CHF42.0m of debt, up from CHF37.2m a year ago. Click the image for more detail. However, its balance sheet shows it holds CHF107.4m in cash, so it actually has CHF65.4m net cash.
How Strong Is Jungfraubahn Holding's Balance Sheet?
The latest balance sheet data shows that Jungfraubahn Holding had liabilities of CHF62.2m due within a year, and liabilities of CHF82.5m falling due after that. Offsetting this, it had CHF107.4m in cash and CHF19.3m in receivables that were due within 12 months. So its liabilities total CHF17.9m more than the combination of its cash and short-term receivables.
Having regard to Jungfraubahn Holding's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CHF930.8m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Jungfraubahn Holding boasts net cash, so it's fair to say it does not have a heavy debt load!
And we also note warmly that Jungfraubahn Holding grew its EBIT by 15% last year, making its debt load easier to handle. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Jungfraubahn Holding's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.