Is ZEAL Network (ETR:TIMA) using too much debt?

Legendary fund manager Li Lu (whom Charlie Munger once backed) once said, “The greatest risk in investing is not price volatility, but whether you will suffer a permanent loss of capital. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. We can see that ZEAL SE network (ETR:TIMA) uses debt in its business. But should shareholders worry about its use of debt?

What risk does debt carry?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we think about a company’s use of debt, we first look at cash and debt together.

Check out our latest analysis for ZEAL Network

How much debt does the ZEAL network bear?

The image below, which you can click on for more details, shows that in June 2022, ZEAL Network had a debt of 8.70 million euros, compared to none in a year. However, he has €101.3m in cash to offset this, leading to a net cash of €92.6m.

XTRA:TIMA Debt to Equity August 15, 2022

A look at the responsibilities of ZEAL Network

The latest balance sheet data shows that ZEAL Network had liabilities of €81.3 million due within one year and liabilities of €66.7 million due in the future. On the other hand, it had €101.3 million in cash and €2.81 million in receivables at less than one year. It therefore has liabilities totaling 43.9 million euros more than its cash and short-term receivables, combined.

Given that ZEAL Network has a market cap of €769.3 million, it’s hard to believe that these liabilities pose a threat. That said, it is clear that we must continue to monitor its record, lest it deteriorate. While it has liabilities to note, ZEAL Network also has more cash than debt, so we’re pretty confident it can manage its debt safely.

What is even more impressive is that ZEAL Network increased its EBIT by 194% year-over-year. If sustained, this growth will make debt even more manageable in years to come. When analyzing debt levels, the balance sheet is the obvious starting point. But it is future earnings, more than anything, that will determine ZEAL Network’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Finally, while the taxman may love accounting profits, lenders only accept cash. ZEAL Network may have net cash on the balance sheet, but it is always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its capacity. . to manage debt. Fortunately for all shareholders, ZEAL Network has actually produced more free cash flow than EBIT over the past two years. There’s nothing better than incoming money to stay in the good books of your lenders.


We can understand that investors are worried about ZEAL Network’s liabilities, but we can be reassured by the fact that it has a net cash position of 92.6 million euros. And he impressed us with a free cash flow of 31 million euros, or 194% of his EBIT. We therefore do not believe that ZEAL Network’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 outside of the balance sheet. We have identified 1 warning sign with ZEAL Network, and understanding them should be part of your investment process.

Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.

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

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