Is SMA Solar Technology (ETR:S92) Overburdened with Debt?

Famous investment guru Li Lu (endorsed by Charlie Munger) once stated that 'losing all your money permanently' is the greatest investment danger rather than the uncertainty in market prices. Hence, scrutinizing a company's financial situation like its balance sheet seems reasonable since bankruptcies typically involve debts. SMA Solar Technology AG (ETR:S92), a company being studied, does have outstanding debts. So, investors should ponder whether its debt profile is alarming.

At What Point Does Debt Become a Problem?

Taking on debt can be helpful for a business, but it can become a problem if they can't pay it back. This could lead to the business going bankrupt if they can't pay their creditors. Even if that doesn't happen, companies in debt often have to raise capital at a discounted price which can hurt shareholders. However, many companies are able to handle their debt effectively and use it to their advantage. When evaluating a company's debt, it's important to look at both their cash and their debt together.

Check out our newest examination of SMA Solar Technology.

In December 2022, SMA Solar Technology’s debt reached €23.7m, an increase from €8.36m the previous year. The image can be enlarged by clicking on it for a better view. Despite this rise in debt, the company’s balance sheet indicates that it possesses €206.6m in cash, which means the net cash currently amounts to €182.9m.

Is SMA Solar Technology's Balance Sheet in good health?

As per the latest balance sheet, SMA Solar Technology had a total of €382.2m in liabilities which are due within the next 12 months, and €264.3m in liabilities that are due after a year. However, the company has a decent amount of cash worth €206.6m, and it can expect to receive €183.2m in receivables within the next 12 months. Despite having some cash and short-term receivables, the total liabilities of the company are still €256.7m more than these assets put together.

With a total value of €3.43b, it is not very probable that the publicly traded SMA Solar Technology shares would be greatly impacted by the liabilities. However, it is advised that shareholders keep an eye on the balance sheet in the future due to the presence of such liabilities. Nonetheless, despite having notable liabilities, the company holds net cash, indicating that it does not have an overwhelming debt burden.

It's worth mentioning that SMA Solar Technology managed to turn their EBIT around from a loss last year to a gain of €32m. When looking at how much debt they have, the balance sheet is a good place to start. However, it's their potential earnings that will really determine whether or not their balance sheet stays strong in the future. If you're curious about what the experts think, you might want to check out this report on analyst profit forecasts. It's free!

In the end, a company has to use actual money to pay off debt—not just the profits they report on paper. SMA Solar Technology might have some cash in the bank, but we need to see how well they can turn their earnings before interest and tax (EBIT) into real, usable cash flow. This helps us understand how fast they're gaining (or losing) money. Unfortunately, SMA Solar Technology had a lot of negative free cash flow over the past year. Even though investors hope this will change, it's a sign that their debt use is more dangerous.

Investors may worry about the liabilities of SMA Solar Technology, but we can be comforted knowing they have net cash of €182.9m. This means we don't have any concerns about SMA Solar Technology's debt usage. It's important to examine the balance sheet when analyzing debt, but there are still risks beyond that which can be difficult to detect. Every company has risks, and we have identified 2 warning signs for SMA Solar Technology that all investors should be aware of.

If you're still looking for a rapidly expanding business with a strong financial foundation, take a look at our compilation of cash-rich stocks that are flourishing without delay.

Although valuation is complicated, we're aiding in simplifying it.

Discover whether or not SMA Solar Technology is currently valued too high or too low by examining our thorough evaluation. This assessment covers a wide range of factors such as reasonable worth predictions, potential hazards and cautions, payouts to investors, insider trades, and financial stability.

Check out the Complimentary Assessment

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