Does Dottikon ES Holding (VTX:DESN) Have A Healthy Balance Sheet?

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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 note that Dottikon ES Holding AG (VTX:DESN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

How Much Debt Does Dottikon ES Holding Carry?

As you can see below, at the end of March 2025, Dottikon ES Holding had CHF130.0m of debt, up from CHF100.0m a year ago. Click the image for more detail. But it also has CHF197.8m in cash to offset that, meaning it has CHF67.8m net cash.

How Strong Is Dottikon ES Holding's Balance Sheet?

According to the last reported balance sheet, Dottikon ES Holding had liabilities of CHF188.5m due within 12 months, and liabilities of CHF169.7m due beyond 12 months. Offsetting this, it had CHF197.8m in cash and CHF109.1m in receivables that were due within 12 months. So its liabilities total CHF51.3m more than the combination of its cash and short-term receivables.

Having regard to Dottikon ES Holding's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the CHF4.14b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Dottikon ES Holding also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Dottikon ES Holding

On top of that, Dottikon ES Holding grew its EBIT by 34% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Dottikon ES Holding'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. While Dottikon ES Holding has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Dottikon ES Holding burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

We could understand if investors are concerned about Dottikon ES Holding's liabilities, but we can be reassured by the fact it has has net cash of CHF67.8m. And it impressed us with its EBIT growth of 34% over the last year. So we don't have any problem with Dottikon ES Holding'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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Dottikon ES Holding you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.