These 4 Measures Indicate That naturenergie holding (VTX:NEAG) Is Using Debt Reasonably Well

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We can see that naturenergie holding AG (VTX:NEAG) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does naturenergie holding Carry?

As you can see below, naturenergie holding had €104.9m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has €196.9m in cash to offset that, meaning it has €92.0m net cash.

How Healthy Is naturenergie holding's Balance Sheet?

The latest balance sheet data shows that naturenergie holding had liabilities of €332.8m due within a year, and liabilities of €387.6m falling due after that. Offsetting these obligations, it had cash of €196.9m as well as receivables valued at €152.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €371.4m.

This deficit isn't so bad because naturenergie holding is worth €1.14b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, naturenergie holding boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for naturenergie holding

On top of that, naturenergie holding grew its EBIT by 73% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if naturenergie 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 .

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. naturenergie 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. Considering the last three years, naturenergie holding 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

Although naturenergie holding's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €92.0m. And it impressed us with its EBIT growth of 73% over the last year. So we don't have any problem with naturenergie holding's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. 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 2 warning signs for naturenergie holding (of which 1 is a bit unpleasant!) you should know about.

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.