Is EMS-CHEMIE HOLDING (VTX:EMSN) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies EMS-CHEMIE HOLDING AG (VTX:EMSN) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 EMS-CHEMIE HOLDING Carry?

As you can see below, EMS-CHEMIE HOLDING had CHF14.8m of debt at June 2025, down from CHF22.8m a year prior. However, its balance sheet shows it holds CHF613.5m in cash, so it actually has CHF598.7m net cash.

How Healthy Is EMS-CHEMIE HOLDING's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that EMS-CHEMIE HOLDING had liabilities of CHF257.6m due within 12 months and liabilities of CHF117.9m due beyond that. Offsetting this, it had CHF613.5m in cash and CHF355.1m in receivables that were due within 12 months. So it can boast CHF593.1m more liquid assets than total liabilities.

This surplus suggests that EMS-CHEMIE HOLDING has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that EMS-CHEMIE HOLDING has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for EMS-CHEMIE HOLDING

Fortunately, EMS-CHEMIE HOLDING grew its EBIT by 7.9% in the last year, making that debt load look even more manageable. 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 EMS-CHEMIE HOLDING 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. EMS-CHEMIE 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. Over the last three years, EMS-CHEMIE HOLDING recorded free cash flow worth a fulsome 82% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that EMS-CHEMIE HOLDING has net cash of CHF598.7m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of CHF445m, being 82% of its EBIT. So we don't think EMS-CHEMIE HOLDING's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. 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 1 warning sign for EMS-CHEMIE HOLDING 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.