Energia

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an ...

Although ENCE Energía y Celulosa's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €63.7m. ENCE Energía y Celulosa may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. So we don't think ENCE Energía y Celulosa's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. Happily for any shareholders, ENCE Energía y Celulosa actually produced more free cash flow than EBIT over the last two years. ENCE Energía y Celulosa has a market capitalization of €722.6m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. Even more impressive was the fact that ENCE Energía y Celulosa grew its EBIT by 152% over twelve months. While it does have liabilities worth noting, ENCE Energía y Celulosa also has more cash than debt, so we're pretty confident it can manage its debt safely. But ultimately the future profitability of the business will decide if ENCE Energía y Celulosa can strengthen its balance sheet over time. We note that ENCE Energía y Celulosa, S.A. However, its balance sheet shows it holds €470.6m in cash, so it actually has €63.7m net cash. When we think about a company's use of debt, we first look at cash and debt together.