David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We can see that Antares Vision S.p.A. (BIT:AV) does use debt in its business. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
How Much Debt Does Antares Vision Carry?
You can click the graphic below for the historical numbers, but it shows that as of December 2018 Antares Vision had €33.9m of debt, an increase on €7.54m, over one year. But on the other hand it also has €62.6m in cash, leading to a €28.7m net cash position.
How Strong Is Antares Vision's Balance Sheet?
The latest balance sheet data shows that Antares Vision had liabilities of €42.6m due within a year, and liabilities of €27.1m falling due after that. Offsetting this, it had €62.6m in cash and €44.6m in receivables that were due within 12 months. So it actually has €37.5m more liquid assets than total liabilities.
This surplus suggests that Antares Vision has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Antares Vision boasts net cash, so it's fair to say it does not have a heavy debt load!
On top of that, Antares Vision grew its EBIT by 46% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Antares Vision's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Antares Vision may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent three years, Antares Vision recorded free cash flow of 25% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.
While it is always sensible to investigate a company's debt, in this case Antares Vision has €28.7m in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 46% over the last year. So is Antares Vision's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Antares Vision, you may well want to click here to check an interactive graph of its earnings per share history.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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