Does Uniper (ETR: UN01) use debt wisely?
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. Like many other companies Uniper SE (ETR: UN01) uses debt. But the real question is whether this debt makes the business risky.
When is Debt a Problem?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. When we look at debt levels, we first consider both liquidity and debt levels.
See our latest review for Uniper
What is Uniper’s debt?
The image below, which you can click for more details, shows that in September 2021, Uniper was in debt of 5.76 billion euros, up from 1.04 billion euros in a year. However, he also had â¬ 1.80 billion in cash, so his net debt is â¬ 3.97 billion.
How strong is Uniper’s balance sheet?
We can see from the most recent balance sheet that Uniper had liabilities of 94.4 billion euros due within one year and liabilities of 43.6 billion euros due beyond. On the other hand, it had cash of â¬ 1.80 billion and â¬ 12.8 billion in receivables within one year. Its liabilities thus exceed the sum of its cash and its receivables (short term) by 123.3 billion euros.
This deficit casts a shadow over the â¬ 15.0 billion company, like a colossus towering over mere mortals. We would therefore monitor its record closely, without a doubt. Ultimately, Uniper would likely need a major recapitalization if its creditors demanded repayment. The balance sheet is clearly the area to focus on when analyzing debt. But it is future profits, more than anything, that will determine Uniper’s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free Analyst Profit Forecast report interesting.
Over 12 months, Uniper had revenue of 99 billion euros, a gain of 98%, although it reported no profit before interest and taxes. The shareholders are probably keeping their fingers crossed that this could generate a profit.
Even though Uniper has managed to grow his revenue quite adroitly, the hard truth is that he is losing money on the EBIT line. Its loss of EBIT was 6.2 billion euros. Thinking about this and the large total liabilities, it’s hard to know what to say about the stock due to our intense de-refinement for it. Like every wide shot, we’re sure it has a brilliant presentation outlining its blue sky potential. But the reality is that it is low on liquid assets compared to liabilities, and it lost 4.8 billion euros last year. We therefore believe that buying this stock is risky. When analyzing debt levels, the balance sheet is the obvious place to start. However, not all investment risks lie on the balance sheet – far from it. For example – Uniper has 1 warning sign we think you should be aware.
At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.
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 any stock 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 any of the stocks mentioned.