Is Ackermans & Van Haaren (EBR:ACKB) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Ackermans & Van Haaren NV (EBR:ACKB) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Ackermans & Van Haaren

What Is Ackermans & Van Haaren's Debt?

You can click the graphic below for the historical numbers, but it shows that Ackermans & Van Haaren had €1.71b of debt in December 2024, down from €1.95b, one year before. But it also has €2.03b in cash to offset that, meaning it has €319.3m net cash.

How Healthy Is Ackermans & Van Haaren's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Ackermans & Van Haaren had liabilities of €10.5b due within 12 months and liabilities of €2.93b due beyond that. Offsetting this, it had €2.03b in cash and €5.21b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €6.24b.

This is a mountain of leverage relative to its market capitalization of €6.52b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Despite its noteworthy liabilities, Ackermans & Van Haaren boasts net cash, so it's fair to say it does not have a heavy debt load!

It is well worth noting that Ackermans & Van Haaren's EBIT shot up like bamboo after rain, gaining 39% in the last twelve months. That'll make it easier to manage its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Ackermans & Van Haaren'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Ackermans & Van Haaren has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Ackermans & Van Haaren generated free cash flow amounting to a very robust 99% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While Ackermans & Van Haaren does have more liabilities than liquid assets, it also has net cash of €319.3m. The cherry on top was that in converted 99% of that EBIT to free cash flow, bringing in €1.1b. So we are not troubled with Ackermans & Van Haaren's debt use. Over time, share prices tend to follow earnings per share, so if you're interested in Ackermans & Van Haaren, you may well want to click here to check an interactive graph of its earnings per share history.

At the end 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 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.