Cementir Holding (BIT:CEM) Has A Pretty Healthy Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Cementir Holding N.V. (BIT:CEM) makes use of debt. But the more important question is: how much risk is that debt creating?

We check all companies for important risks. See what we found for Cementir Holding in our free report.

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Cementir Holding's Debt?

You can click the graphic below for the historical numbers, but it shows that Cementir Holding had €121.6m of debt in December 2024, down from €157.4m, one year before. However, its balance sheet shows it holds €485.6m in cash, so it actually has €364.1m net cash.

A Look At Cementir Holding's Liabilities

The latest balance sheet data shows that Cementir Holding had liabilities of €516.0m due within a year, and liabilities of €383.4m falling due after that. Offsetting this, it had €485.6m in cash and €211.2m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €202.5m.

Since publicly traded Cementir Holding shares are worth a total of €2.14b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Cementir Holding boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Cementir Holding

But the other side of the story is that Cementir Holding saw its EBIT decline by 4.8% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Cementir Holding can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Cementir Holding has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Cementir Holding generated free cash flow amounting to a very robust 88% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

We could understand if investors are concerned about Cementir Holding's liabilities, but we can be reassured by the fact it has has net cash of €364.1m. And it impressed us with free cash flow of €216m, being 88% of its EBIT. So we don't think Cementir Holding's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Cementir Holding's earnings per share history for free.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.