We think ATM Grupa (WSE:ATG) can manage its debt with ease

David Iben said it well when he said: “Volatility is not a risk that interests us. What matters to us is to avoid the permanent loss of capital. When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. Above all, ATM Group SA (WSE:ATG) is in debt. But the real question is whether this debt makes the business risky.

Why is debt risky?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more frequent (but still costly) event is when a company has to issue shares at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. When we think about a company’s use of debt, we first look at cash and debt together.

Check out our latest analysis for ATM Grupa

What is ATM Grupa’s debt?

As you can see below, ATM Grupa had a debt of 15.8 million zł in March 2022, compared to 17.4 million zł the previous year. However, his balance sheet shows that he holds 24.5 million zł in cash, so he actually has 8.67 million in net cash.

WSE:ATG Debt to Equity September 7, 2022

How strong is ATM Grupa’s balance sheet?

We can see from the most recent balance sheet that ATM Grupa had liabilities of 71.7 million zł due in one year, and liabilities of 38.7 million zł due beyond. On the other hand, he had cash of 24.5 million zł and 62.2 million zł of receivables due within the year. Thus, its liabilities outweigh the sum of its cash and (short-term) receivables by 23.6 million zł.

Of course, ATM Grupa has a market capitalization of 254.6 million zł, so these liabilities are probably manageable. However, we think it’s worth keeping an eye on the strength of its balance sheet, as it can change over time. Despite its notable liabilities, ATM Grupa has a net cash position, so it’s fair to say that it is not very leveraged!

On top of that, ATM Grupa has increased its EBIT by 59% over the last twelve months, and this growth will make it easier to manage its debt. There is no doubt that we learn the most about debt from the balance sheet. But you can’t look at debt in total isolation; because ATM Grupa will need income to repay this debt. So, if you want to know more about its earnings, it may be worth checking out this graph of its long-term trend.

Finally, while the taxman may love accounting profits, lenders only accept cash. ATM Grupa may have net cash on the balance sheet, but it is always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its capacity. . to manage debt. Over the past three years, ATM Grupa has recorded free cash flow of 50% of its EBIT, which is about normal, given that free cash flow excludes interest and taxes. This cold hard cash allows him to reduce his debt whenever he wants.

Summary

While it’s always a good idea to look at a company’s total liabilities, it’s very reassuring to see that ATM Grupa has zł8.67 million in net cash. And we liked the look of EBIT growth of 59% YoY last year. We therefore do not believe ATM Grupa’s use of debt is risky. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks reside on the balance sheet, far from it. Example: we have identified 3 warning signs for ATM Grupa you should be aware, and one of them is concerning.

In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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