These 4 Measures Indicate That Kuehne + Nagel International (VTX:KNIN) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Kuehne + Nagel International AG (VTX:KNIN) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Kuehne + Nagel International

What Is Kuehne + Nagel International's Net Debt?

As you can see below, Kuehne + Nagel International had CHF223.0m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have CHF1.80b in cash offsetting this, leading to net cash of CHF1.57b.

A Look At Kuehne + Nagel International's Liabilities

The latest balance sheet data shows that Kuehne + Nagel International had liabilities of CHF5.58b due within a year, and liabilities of CHF3.00b falling due after that. Offsetting these obligations, it had cash of CHF1.80b as well as receivables valued at CHF4.60b due within 12 months. So its liabilities total CHF2.18b more than the combination of its cash and short-term receivables.

Given Kuehne + Nagel International has a humongous market capitalization of CHF31.7b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Kuehne + Nagel International also has more cash than debt, so we're pretty confident it can manage its debt safely.

In fact Kuehne + Nagel International's saving grace is its low debt levels, because its EBIT has tanked 50% 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 Kuehne + Nagel International'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Kuehne + Nagel International 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, Kuehne + Nagel International generated free cash flow amounting to a very robust 90% 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 look at a company's total liabilities, it is very reassuring that Kuehne + Nagel International has CHF1.57b in net cash. The cherry on top was that in converted 90% of that EBIT to free cash flow, bringing in CHF940m. So we don't have any problem with Kuehne + Nagel International's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Kuehne + Nagel International has 2 warning signs we think you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com