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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Schwälbchen Molkerei Jakob Berz AG (FRA:SMB) does use debt in its business. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
Check out our latest analysis for Schwälbchen Molkerei Jakob Berz
What Is Schwälbchen Molkerei Jakob Berz's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of December 2018 Schwälbchen Molkerei Jakob Berz had €7.35m of debt, an increase on €5.31m, over one year. However, it does have €10.6m in cash offsetting this, leading to net cash of €3.26m.
A Look At Schwälbchen Molkerei Jakob Berz's Liabilities
According to the last reported balance sheet, Schwälbchen Molkerei Jakob Berz had liabilities of €24.8m due within 12 months, and liabilities of €7.88m due beyond 12 months. Offsetting these obligations, it had cash of €10.6m as well as receivables valued at €19.7m due within 12 months. So it has liabilities totalling €2.34m more than its cash and near-term receivables, combined.
Given Schwälbchen Molkerei Jakob Berz has a market capitalization of €45.2m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Schwälbchen Molkerei Jakob Berz also has more cash than debt, so we're pretty confident it can manage its debt safely.
Another good sign is that Schwälbchen Molkerei Jakob Berz has been able to increase its EBIT by 22% in twelve months, making it easier to pay down debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Schwälbchen Molkerei Jakob Berz's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.