Debt is one of the crucial aspects that should be considered when evaluating the investment risk of a company. As Warren Buffett famously said, “Volatility is not the same as risk.” SMA Solar Technology AG (ETR:S92) utilizes debt in its operations, but the key question is: how much risk does this debt bring?
Debt becomes a problem when a company is unable to easily repay it, either through capital raising or its own cash flow. In extreme cases, lenders may take control of the company. While this is rare, we often see situations where heavily indebted companies dilute their shareholders as they are forced to raise capital at discounted prices. However, debt can also be an important tool in capital-intensive businesses.
The first step in assessing a company’s debt level is to look at its cash and debt position. The data collected for SMA Solar Technology shows that as of the end of September 2023, the company had a debt of €22.3 million, which remained unchanged over the year. However, it also had €289.5 million in cash, resulting in a net amount of €267.2 million.
The current balance sheet of SMA Solar Technology reveals that the company has €647.1 million of debt due within a year, as well as €273.4 million of debt due after that period. On the other hand, it has €289.5 million in cash and €278.6 million of receivables due within a year. This means that its liabilities exceed the sum of cash and receivables (short-term) by €352.4 million. Considering that the publicly traded shares of SMA Solar Technology are valued at €1.83 billion, it seems unlikely that this debt level poses a significant threat. However, it is still important to note the strength of the company’s balance sheet, as it can change over time.
In summary, despite SMA Solar Technology having more liabilities than liquid assets, it also has a net cash amount of €267.2 million. Therefore, we are not overly concerned about the company’s debt. When analyzing the level of debt, the balance sheet is an obvious starting point. However, every company may involve risks that exist beyond the balance sheet.
Key points presented in the article:
1. Debt is one of the crucial aspects that should be considered when evaluating the investment risk of a company.
2. SMA Solar Technology AG utilizes debt in its operations.
3. Problematic debt occurs when a company is unable to easily repay its debts.
4. The data collected for SMA Solar Technology shows that the company has a debt of €22.3 million, but also has €289.5 million in cash, resulting in a net amount of €267.2 million.
5. The current balance sheet of the company reveals that its liabilities exceed the sum of cash and receivables by €352.4 million.
6. Despite having more liabilities than liquid assets, SMA Solar Technology also has a net cash amount of €267.2 million, suggesting that the debt does not pose a significant threat.
Key term definitions and jargon:
– Debt: The state in which a company has financial obligations or liabilities towards other entities.
– Balance sheet: A financial statement that presents a company’s assets, liabilities, and shareholders’ equity at a specific point in time.
Suggested related links:
– SMA Solar Technology AG Homepage
– SMA Solar Technology AG Products
The source of the article is from the blog be3.sk