Does Materialize (NASDAQ: MTLS) have a healthy track record?

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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from risk.” So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. We can see that Materialize NV (NASDAQ: MTLS) uses debt in its business. But does this debt worry shareholders?

When Is Debt a Problem?

Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, debt can be an important tool in businesses, especially capital intensive businesses. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.

How much debt does it materialize?

The image below, which you can click for more details, shows Materialize had a debt of 97.5 million euros at the end of June 2021, a reduction from 111.9 million euros over one year. . But on the other hand, it also has 182.8 million euros in cash, which leads to a net cash position of 85.3 million euros.

NasdaqGS: MTLS Historical Debt to Equity October 28, 2021

A look at the responsibilities of Materialize

Zooming in on the latest balance sheet data, we can see that Materialize had a liability of 89.3 million euros due within 12 months and a liability of 100.0 million euros due beyond. In return, he had € 182.8 million in cash and € 33.7 million in receivables due within 12 months. He can thus claim € 27.2 million in more liquidity than total Liabilities.

This short-term liquidity is a sign that Materialize could probably pay off its debt easily, as its balance sheet is far from tight. In short, Materialize has a net cash flow, so it’s fair to say that it doesn’t have a lot of debt!

Importantly, Materialize has increased its EBIT by 77% over the past twelve months, and this growth will make it easier to process its debt. When analyzing debt levels, the balance sheet is the obvious starting point. But it’s future profits, more than anything, that will determine Materialize’s ability to maintain a healthy balance sheet going forward. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Finally, a business can only pay off its debts with hard cash, not with book profits. Materialize may have net cash on the balance sheet, but it’s always interesting to see how well the business converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its ability to manage debt. Fortunately for all shareholders, Materialize has actually generated more free cash flow than EBIT over the past three years. There is nothing better than cash flow to stay in the good graces of your lenders.

In summary

While it still makes sense to investigate a company’s debt, then Materialize has $ 85.3 million in net cash and a decent balance sheet. The icing on the cake is that he converted 336% of that EBIT into free cash flow, bringing in 14 million euros. So we don’t think Materialize’s use of debt is risky. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist off the balance sheet. To do this, you need to know the 1 warning sign we spotted with Materialize.

At the end of the day, it’s often best to focus on businesses with no net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

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