Rather than worrying about stock volatility, Howard Marks said, “The potential for permanent loss is the risk that worries me…and every real investor I know worries.” I am.” So smart rich people seem to know that debt (usually associated with bankruptcy) is a very important factor in assessing a company’s risk.we can see it Nemechek SE (ETR:NEM) uses debt in its business. But the bigger question is how much risk does that liability create?
when debt is dangerous
Debt and other liabilities become dangerous to a business when it cannot easily meet these obligations through free cash flow or raising capital at an attractive price. In the worst case, companies that cannot pay their creditors may go bankrupt. Although less common, we often see debt companies permanently diluting their shareholders. The advantage of debt, of course, is that it often represents cheap capital, especially when you replace the company’s dilution with the ability to reinvest at a high rate of return. It is to consider the debt together.
Check out Nemetschek’s latest analysis
What are Nemetschek’s debts?
The image below, which can be clicked for more information, shows that at the end of September 2022, Nemetschek was €66.1 million in debt, down from €82.8 million over the course of the year. However, offsetting this, he has €186.6m in cash, giving him a net cash of €120.5m.
Look at Nemechek’s debt
The latest balance sheet shows that Nemetschek has a debt of €391.1 million, which is due within one year and a debt of €104.7 million will be paid after that time. Offsetting this was €186.6 million in cash and €97.9 million of his accounts receivable due within the next 12 months. He is therefore €211.3 million more in debt than his combined cash and short-term receivables.
Given that the listed Nemechek shares are worth a total of €5.86 billion, this level of debt is unlikely to pose a significant threat. However, there is enough debt to strongly encourage shareholders to continue to monitor their balance sheet. Despite its notable debts, Nemetschek boasts of net cash, so it’s safe to say he doesn’t have a lot of debt.
Another positive sign is that Nemetschek was able to increase EBIT by 28% in 12 months, making it easier to pay down debt. Arguably, we learn the most about debt from the balance sheet. But whether Nemetschek can gradually strengthen its balance sheet will ultimately depend on the future profitability of the business.So if you are focused on the future check this out freedom A report that shows an analyst’s profit forecast.
Finally, the business needs free cash flow to pay off its debt. Accounting profit doesn’t cut it. Nemetschek may have net cash on its balance sheet, but it will still be interesting to see how the business converts earnings before interest (EBIT) into free cash flow. Manage your debt. Over the last three years, Nemetschek actually generated more free cash flow than he did EBIT. When the beat drops at a Daft Punk concert, this kind of strong cash conversion excites us as much as the audience.
We can understand if investors are concerned about Nemetschek’s debt, but the fact that it has €120.5 million in net cash is comforting. Best of all, he converted his 118% of EBIT into free cash flow, bringing in €209 million. Therefore, we believe that the use of Nemechek’s debt is not dangerous. We believe tracking how fast earnings per share is growing is more important than most other metrics. If you’ve noticed that too, you’re in luck.because today you can View a free interactive graph of Nemetschek’s earnings per share history.
Check this out if you’re interested in investing in a profitable business without debt. freedom List of growth companies with net cash on their balance sheets.
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This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Is not …