Howard Marks put it nicely when he said that instead of worrying about stock price volatility, “the possibility of permanent loss is the risk I worry about … and every practical investor I know is concerned about.” , worries.” So it seems that smart money knows that debt – which usually plays a role in bankruptcies – is a very important factor when assessing a company’s risk. As with many other companies Zarneni Hrani Bulgaria AD (BUL:ZHBG) leverages debt. But is that debt a problem for shareholders?
When is debt a problem?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it’s at their mercy. Ultimately, if the company fails to meet its legal obligations to pay down debt, shareholders could get away with nothing. While not all that common, we often see leveraged companies permanently diluting shareholders as lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, especially capital-intensive ones. The first thing to do when considering how much debt a company uses is to look at its cash and debt together.
Check out our latest analysis for Zarneni Hrani Bulgaria AD
What is the net debt of Zarneni Hrani Bulgaria AD?
You can click on the graph below to see historical figures, but it shows that in December 2021 Zarneni Hrani Bulgaria AD had a debt of лв 46.6 million, an increase of лв 30.4 million over a year corresponds. However, it also had лв 9.38 million in cash, making its net debt лв 37.2 million.
How strong is Zarneni Hrani Bulgaria AD’s balance sheet?
The latest balance sheet shows that Zarneni Hrani Bulgaria AD had liabilities of лв 47.2 million that were due within one year and liabilities of лв 57.2 million that were due beyond that. On the other hand, it had cash and cash equivalents of LB9.38 million and receivables of LB104.8 million that were due within one year. So it actually has лв9.83m more cash and cash equivalents than total liabilities.
This excess liquidity suggests that Zarneni Hrani Bulgaria AD is cautious about debt. Since it has many assets, it is unlikely to have any problems with its lenders. Undoubtedly, we learn most about debt from the balance sheet. But it is Zarneni Hrani Bulgaria AD’s earnings that will affect the future balance sheet. So when looking at debt, it’s definitely worth looking at earnings performance. Click here for an interactive snapshot.
Over 12 months, Zarneni Hrani Bulgaria AD reported revenue of лв 81 million, which translates to a profit of 8.5%, although it did not report earnings before interest and taxes. We usually like to see unprofitable companies grow faster, but to each their own.
In the last twelve months, Zarneni Hrani Bulgaria AD has generated a loss before interest and taxes (EBIT). In fact, it lost лв 2.3 million at the EBIT level. On the plus side, the company has ample cash and cash equivalents, giving it time to grow and develop before its debt becomes a near-term problem. In addition, the company posted free cash flow of лв 5.8 million and profit of лв 3.5 million last year. So too risky for our taste. Undoubtedly, we learn most about debt from the balance sheet. However, the entire investment risk is not on the balance sheet – far from it. For example, we have identified 3 warning signs for Zarneni Hrani Bulgaria AD that you should be aware of.
If, after all that, you’re more interested in a fast-growing company with a rock-solid balance sheet, check out our list of net cash growth stocks right away.
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