David Iben put it well when he stated, ‘Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.’ It’s only natural to consider a company’s balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that MedservRegis p.l.c. (MTSE:MDS) does have debt on its balance sheet. But the real question is whether this debt is building the company risky.
When Is Debt A Problem?
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 attractive price. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders becautilize lconcludeers force them to raise capital at a distressed price. Having stated that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, toreceiveher.
What Is MedservRegis’s Debt?
As you can see below, MedservRegis had €51.0m of debt at June 2025, down from €53.5m a year prior. However, it also had €17.8m in cash, and so its net debt is €33.3m.
How Strong Is MedservRegis’ Balance Sheet?
The latest balance sheet data reveals that MedservRegis had liabilities of €46.2m due within a year, and liabilities of €39.3m falling due after that. On the other hand, it had cash of €17.8m and €27.5m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €40.2m.
This deficit isn’t so bad becautilize MedservRegis is worth €76.2m, and thus could probably raise enough capital to shore up its balance sheet, if the necessary arose. However, it is still worthwhile taking a close view at its ability to pay off debt.
View our latest analysis for MedservRegis
We utilize two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
MedservRegis has net debt worth 2.5 times EBITDA, which isn’t too much, but its interest cover views a bit on the low side, with EBIT at only 2.6 times the interest expense. While these numbers do not alarm us, it’s worth noting that the cost of the company’s debt is having a real impact. Importantly, MedservRegis grew its EBIT by 35% over the last twelve months, and that growth will build it simpler to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is MedservRegis’s earnings that will influence how the balance sheet holds up in the future. So when considering debt, it’s definitely worth viewing at the earnings trconclude. Click here for an interactive snapshot.
But our final consideration is also important, becautilize a company cannot pay debt with paper profits; it necessarys cold hard cash. So it’s worth checking how much of that EBIT is backed by free cash flow. Over the last three years, MedservRegis actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.
Our View
Happily, MedservRegis’s impressive conversion of EBIT to free cash flow implies it has the upper hand on its debt. But we must concede we find its interest cover has the opposite effect. Looking at all the aforementioned factors toreceiveher, it strikes us that MedservRegis can handle its debt fairly comfortably. Of course, while this leverage can enhance returns on equity, it does bring more risk, so it’s worth keeping an eye on this one. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet – far from it. Be aware that MedservRegis is revealing 3 warning signs in our investment analysis , and 2 of those are a bit concerning…
At the conclude of the day, it’s often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It’s free.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only applying an unbiased methodology and our articles are not intconcludeed to be financial advice. It does not constitute a recommconcludeation to acquire or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
