Schindler Holding (VTX:SCHN) Seems To Use Debt Rather Sparingly

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Schindler Holding AG (VTX:SCHN) does carry debt. But should shareholders be worried about its use of debt?

We check all companies for important risks. See what we found for Schindler Holding in our free report.

When Is Debt A Problem?

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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Schindler Holding Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Schindler Holding had CHF319.0m of debt, an increase on CHF271.0m, over one year. However, its balance sheet shows it holds CHF4.07b in cash, so it actually has CHF3.75b net cash.

A Look At Schindler Holding's Liabilities

Zooming in on the latest balance sheet data, we can see that Schindler Holding had liabilities of CHF5.82b due within 12 months and liabilities of CHF1.12b due beyond that. Offsetting these obligations, it had cash of CHF4.07b as well as receivables valued at CHF2.95b due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Schindler Holding's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the CHF28.9b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Schindler Holding boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Schindler Holding

Fortunately, Schindler Holding grew its EBIT by 6.6% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Schindler Holding can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Schindler Holding 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, Schindler Holding generated free cash flow amounting to a very robust 96% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case Schindler Holding has CHF3.75b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 96% of that EBIT to free cash flow, bringing in CHF1.5b. So is Schindler Holding's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Schindler Holding's earnings per share history for free.

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.