These 4 Measures Indicate That Tessenderlo Group (EBR:TESB) Is Using Debt Reasonably Well

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Tessenderlo Group NV (EBR:TESB) does use debt in its business. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Tessenderlo Group's Net Debt?

The image below, which you can click on for greater detail, shows that at June 2025 Tessenderlo Group had debt of €206.3m, up from €157.9m in one year. However, its balance sheet shows it holds €236.2m in cash, so it actually has €29.9m net cash.

How Healthy Is Tessenderlo Group's Balance Sheet?

The latest balance sheet data shows that Tessenderlo Group had liabilities of €647.2m due within a year, and liabilities of €384.4m falling due after that. Offsetting these obligations, it had cash of €236.2m as well as receivables valued at €519.8m due within 12 months. So its liabilities total €275.6m more than the combination of its cash and short-term receivables.

Given Tessenderlo Group has a market capitalization of €1.51b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Tessenderlo Group also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Tessenderlo Group

It is just as well that Tessenderlo Group's load is not too heavy, because its EBIT was down 42% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Tessenderlo Group can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Tessenderlo Group 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. During the last three years, Tessenderlo Group generated free cash flow amounting to a very robust 85% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While Tessenderlo Group does have more liabilities than liquid assets, it also has net cash of €29.9m. And it impressed us with free cash flow of €110m, being 85% of its EBIT. So we don't have any problem with Tessenderlo Group's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Tessenderlo Group that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.