Is Umicore (EBR:UMI) 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.' 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 note that Umicore SA (EBR:UMI) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

We've discovered 3 warning signs about Umicore. View them for free.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Umicore's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Umicore had debt of €3.36b, up from €2.68b in one year. On the flip side, it has €2.01b in cash leading to net debt of about €1.35b.

A Look At Umicore's Liabilities

We can see from the most recent balance sheet that Umicore had liabilities of €4.35b falling due within a year, and liabilities of €3.14b due beyond that. On the other hand, it had cash of €2.01b and €1.17b worth of receivables due within a year. So its liabilities total €4.30b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the €2.02b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Umicore would likely require a major re-capitalisation if it had to pay its creditors today. 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 Umicore'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.

Check out our latest analysis for Umicore

In the last year Umicore had a loss before interest and tax, and actually shrunk its revenue by 19%, to €15b. We would much prefer see growth.

Caveat Emptor

While Umicore's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping €308m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of €1.5b didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Umicore you should know about.

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.