Warren Buffett once said that “volatility is far from synonymous with risk.” When evaluating the risk of a stock, it’s important to consider the level of debt a company carries, as excessive debt can potentially sink a company. One such company that uses debt in its operations is SMA Solar Technology AG (ETR:S92). The question then becomes, how much risk does this debt pose for the company?
Debt becomes a concern when a company struggles to repay it, either through raising capital or using its own cash flow. If things get really dire, lenders can take control of the Business, or the company may be forced to issue shares at a distressed price, ultimately diluting the value for shareholders. However, debt can also be a vital tool for capital-heavy businesses. When evaluating a company’s debt levels, it’s crucial to assess its cash and debt together.
As of September 2023, SMA Solar Technology had €22.3m of debt, an increase from the previous year, but also had €289.5m in cash, resulting in €267.2m net cash. While the company had liabilities totaling €647.1m due within a year and €273.4m due beyond that, its substantial cash reserves and receivables paint a more optimistic picture.
Despite its liabilities, SMA Solar Technology boasts more cash than debt, providing confidence in its ability to manage its debt safely. Additionally, the company has shown a turnaround in profitability, earning €192m in EBIT over the past year. However, it’s important to consider how well the business converts its earnings to free cash flow, as this impacts its capacity to manage debt.
In conclusion, SMA Solar Technology’s net cash of €267.2m outweighs its liabilities, indicating that its debt use may not be a cause for concern. While analyzing debt levels is essential, it’s also important to note that every company carries risks beyond its balance sheet. For those interested in their detailed analysis, including fair value estimates, risks and warnings, dividends, insider transactions, and financial Health, it’s recommended to consult their free analysis.
Readers can also access a list of growth stocks with zero net debt, free of charge. For those concerned about the content or looking to provide feedback, they can get in touch with the editorial team directly. It’s important to note that this article is meant to provide commentary based on historical data and analyst forecasts using an unbiased methodology, and is not intended to serve as financial advice.
In conclusion, while analyzing debt levels is essential, it’s also important to note that every company carries risks beyond its balance sheet. For those interested in their detailed analysis, including fair value estimates, risks and warnings, dividends, insider transactions, and financial health, it’s recommended to consult their free analysis.
Read More Technology News
