Yahoo Finance Aeroporto Guglielmo Marconi di Bologna (BIT:ADB) Has A Pretty Healthy Balance Sheet
The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 note that Aeroporto Guglielmo Marconi di Bologna S.p.A. (BIT:ADB) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
When Is Debt A Problem?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
See our latest analysis for Aeroporto Guglielmo Marconi di Bologna
How Much Debt Does Aeroporto Guglielmo Marconi di Bologna Carry?
The image below, which you can click on for greater detail, shows that Aeroporto Guglielmo Marconi di Bologna had debt of €15.8m at the end of March 2020, a reduction from €20.9m over a year. But on the other hand it also has €27.3m in cash, leading to a €11.6m net cash position.
How Healthy Is Aeroporto Guglielmo Marconi di Bologna's Balance Sheet?
According to the last reported balance sheet, Aeroporto Guglielmo Marconi di Bologna had liabilities of €55.7m due within 12 months, and liabilities of €30.8m due beyond 12 months. Offsetting this, it had €27.3m in cash and €16.9m in receivables that were due within 12 months. So its liabilities total €42.4m more than the combination of its cash and short-term receivables.
Given Aeroporto Guglielmo Marconi di Bologna has a market capitalization of €299.8m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Aeroporto Guglielmo Marconi di Bologna also has more cash than debt, so we're pretty confident it can manage its debt safely.
While Aeroporto Guglielmo Marconi di Bologna doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Aeroporto Guglielmo Marconi di Bologna can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Aeroporto Guglielmo Marconi di Bologna 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, Aeroporto Guglielmo Marconi di Bologna produced sturdy free cash flow equating to 53% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.
Summing up
Although Aeroporto Guglielmo Marconi di Bologna's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €11.6m. So we don't have any problem with Aeroporto Guglielmo Marconi di Bologna's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Aeroporto Guglielmo Marconi di Bologna , and understanding them should be part of your investment process.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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