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Warren Buffett said: “Volatility is far from synonymous with risk”. So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. We note that Zur Rose Group SA (VTX: ROSE) has debt on its balance sheet. But the real question is whether this debt makes the business risky.
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. Of course, debt can be an important tool in businesses, especially capital intensive businesses. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
See our latest analysis for the Zur Rose group
What is the debt of the Zur Rose group?
The graph below, which you can click for more details, shows that the Zur Rose Group had a debt of CHF 484.7 million in June 2021; about the same as the year before. On the other hand, it has 252.0 million Swiss francs in cash, resulting in a net debt of around 232.7 million Swiss francs.
How healthy is the balance sheet of the Zur Rose Group?
The latest balance sheet data shows that the Zur Rose Group had debts of CHF 190.7 million maturing within one year, and debts of CHF 594.6 million maturing thereafter. In compensation for these obligations, he had cash of CHF 252.0 million as well as receivables valued at CHF 140.1 million within 12 months. Its liabilities therefore exceed the sum of its cash and (short-term) receivables by CHF 393.2 million.
Given that the Zur Rose Group has a market capitalization of 3.21 billion Swiss francs, it is hard to believe that these liabilities pose a significant threat. However, we think it’s worth keeping an eye on the strength of its balance sheet as it can change over time. When analyzing debt levels, the balance sheet is the obvious starting point. But it is future profits, more than anything, that will determine the ability of the Zur Rose Group to maintain a healthy balance sheet in the future. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Over the past year, the Zur Rose group has not been profitable in terms of EBIT, but has managed to increase its turnover by 17% to CHF 1.6 billion. This rate of growth is a bit slow for our taste, but it takes all types to make a world.
Emptor Warning
During the last twelve months, the Zur Rose group has recorded a loss of profit before interest and taxes (EBIT). Indeed, it lost CHF 150 million in EBIT. When we look at this and recall the liabilities on its balance sheet, versus the cash flow, it seems unwise to us that the company has debt. Quite frankly, we think the record is far from up to par, although it could improve over time. However, it doesn’t help that he spent CHF 116 million in cash in the past year. Suffice it to say that we consider the action to be risky. When we look at a riskier business, we like to see how its profits (or losses) have changed over time. Today we are providing readers with this interactive graph showing how the Zur Rose Group’s earnings, revenue and operating cash flow have changed over the past few years.
Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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