David Iben put it well when he said: “Volatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. Mostly, LPKF Laser & Electronics SA (ETR: LPK) carries the debt. 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. If things really go wrong, lenders can take over the business. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.

Check out our latest review for LPKF Laser & Electronics

What is the debt of LPKF Laser & Electronics?

The image below, which you can click for more details, shows that LPKF Laser & Electronics had a debt of 4.60 M € at the end of March 2021, a reduction of 6.28 M € over one year. But on the other hand, it also has 17.8 million euros of cash, which leads to a net cash of 13.2 million euros.

How strong is LPKF Laser & Electronics’ balance sheet?

According to the latest published balance sheet, LPKF Laser & Electronics had liabilities of 24.3 million euros at 12 months and liabilities of 6.55 million euros over 12 months. In compensation for these obligations, he had cash of € 17.8 million as well as receivables valued at € 11.5 million within 12 months. Its liabilities thus exceed the sum of its cash and its receivables (short term) by € 1.58 million.

This fact indicates that LPKF Laser & Electronics’ balance sheet looks quite strong, as its total liabilities are roughly equal to its cash. So the € 596.1million company is highly unlikely to run out of cash, but it’s still worth keeping an eye on the balance sheet. While it has some liabilities to note, LPKF Laser & Electronics also has more cash than debt, so we’re pretty confident it can handle its debt safely.

Modest indebtedness may become crucial for LPKF Laser & Electronics if management cannot prevent a repeat of the 47% drop in EBIT over the past year. When it comes to paying down debt, lower income is no more helpful to your health than sugary sodas. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is future profits, more than anything, that will determine LPKF Laser & Electronics’ ability to maintain a healthy balance sheet in the future. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

But our last consideration is also important, because a business cannot pay its debts with paper profits; he needs hard cash. LPKF Laser & Electronics may have net cash on the balance sheet, but it is always interesting to consider the extent to which the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its needs. in its ability to manage debt. In the past three years, LPKF Laser & Electronics has actually generated more free cash flow than EBIT. There is nothing better than cash flow to stay in the good graces of your lenders.

In summary

While it is always a good idea to look at the total liabilities of a company, it is very reassuring that LPKF Laser & Electronics has € 13.2 million in net cash. And it impressed us with free cash flow of € 2.6 million, or 131% of its EBIT. We are therefore not concerned about the use of LPKF Laser & Electronics debt. Over time, stock prices tend to follow earnings per share, so if you are interested in LPKF Laser & Electronics, you can click here to view an interactive graph of its historical earnings per share.

If you are interested in investing in companies that can generate profits without the burden of debt, check out this page. free list of growing companies that have net cash on the balance sheet.

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