David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, The Swatch Group AG (VTX:UHR) does carry debt. But is this debt a concern to shareholders?
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 examine debt levels, we first consider both cash and debt levels, together.
What Is Swatch Group's Net Debt?
As you can see below, at the end of June 2025, Swatch Group had CHF187.0m of debt, up from CHF34.0m a year ago. Click the image for more detail. But it also has CHF1.28b in cash to offset that, meaning it has CHF1.09b net cash.
How Strong Is Swatch Group's Balance Sheet?
According to the last reported balance sheet, Swatch Group had liabilities of CHF1.16b due within 12 months, and liabilities of CHF718.0m due beyond 12 months. On the other hand, it had cash of CHF1.28b and CHF598.0m worth of receivables due within a year. So these liquid assets roughly match the total liabilities.
This state of affairs indicates that Swatch Group'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 CHF7.26b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Swatch Group boasts net cash, so it's fair to say it does not have a heavy debt load!
View our latest analysis for Swatch Group
In fact Swatch Group's saving grace is its low debt levels, because its EBIT has tanked 76% in the last twelve months. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. 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 Swatch Group's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. Swatch 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. Considering the last three years, Swatch Group actually recorded a cash outflow, overall. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.
Summing Up
We could understand if investors are concerned about Swatch Group's liabilities, but we can be reassured by the fact it has has net cash of CHF1.09b. So although we see some areas for improvement, we're not too worried about Swatch Group's balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Swatch Group (of which 1 is potentially serious!) you should know about.
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.