Here's Why AGRANA Beteiligungs-Aktiengesellschaft (VIE:AGR) Has A Meaningful Debt Burden

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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies AGRANA Beteiligungs-Aktiengesellschaft (VIE:AGR) makes use of debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does AGRANA Beteiligungs-Aktiengesellschaft Carry?

The image below, which you can click on for greater detail, shows that AGRANA Beteiligungs-Aktiengesellschaft had debt of €655.9m at the end of May 2025, a reduction from €755.1m over a year. However, it also had €208.7m in cash, and so its net debt is €447.2m.

How Healthy Is AGRANA Beteiligungs-Aktiengesellschaft's Balance Sheet?

The latest balance sheet data shows that AGRANA Beteiligungs-Aktiengesellschaft had liabilities of €882.3m due within a year, and liabilities of €471.7m falling due after that. Offsetting these obligations, it had cash of €208.7m as well as receivables valued at €317.2m due within 12 months. So it has liabilities totalling €828.1m more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of €762.4m, we think shareholders really should watch AGRANA Beteiligungs-Aktiengesellschaft's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution.

View our latest analysis for AGRANA Beteiligungs-Aktiengesellschaft

We use 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). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

While AGRANA Beteiligungs-Aktiengesellschaft's debt to EBITDA ratio (2.8) suggests that it uses some debt, its interest cover is very weak, at 1.7, suggesting high leverage. In large part that's due to the company's significant depreciation and amortisation charges, which arguably mean its EBITDA is a very generous measure of earnings, and its debt may be more of a burden than it first appears. So shareholders should probably be aware that interest expenses appear to have really impacted the business lately. Even worse, AGRANA Beteiligungs-Aktiengesellschaft saw its EBIT tank 60% over the last 12 months. If earnings continue to follow that trajectory, paying off that debt load will be harder than convincing us to run a marathon in the rain. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine AGRANA Beteiligungs-Aktiengesellschaft's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. So it's worth checking how much of that EBIT is backed by free cash flow. During the last three years, AGRANA Beteiligungs-Aktiengesellschaft generated free cash flow amounting to a very robust 96% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Our View

To be frank both AGRANA Beteiligungs-Aktiengesellschaft's interest cover and its track record of (not) growing its EBIT make us rather uncomfortable with its debt levels. But at least it's pretty decent at converting EBIT to free cash flow; that's encouraging. Looking at the bigger picture, it seems clear to us that AGRANA Beteiligungs-Aktiengesellschaft's use of debt is creating risks for the company. If everything goes well that may pay off but the downside of this debt is a greater risk of permanent losses. 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. For example, we've discovered 1 warning sign for AGRANA Beteiligungs-Aktiengesellschaft that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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 using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused 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.