Frequentis (ETR:FQT) Seems To Use Debt Rather Sparingly

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 can see that Frequentis AG (ETR:FQT) does use debt in its business. But should shareholders be worried about its use of debt?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Frequentis's Debt?

As you can see below, at the end of June 2025, Frequentis had €7.00m of debt, up from €1.65m a year ago. Click the image for more detail. But on the other hand it also has €73.2m in cash, leading to a €66.2m net cash position.

A Look At Frequentis' Liabilities

According to the last reported balance sheet, Frequentis had liabilities of €174.3m due within 12 months, and liabilities of €82.2m due beyond 12 months. Offsetting this, it had €73.2m in cash and €191.3m in receivables that were due within 12 months. So it actually has €7.97m more liquid assets than total liabilities.

This state of affairs indicates that Frequentis' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the €778.0m company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that Frequentis has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Frequentis

In addition to that, we're happy to report that Frequentis has boosted its EBIT by 55%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Frequentis 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. Frequentis 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. In the last three years, Frequentis's free cash flow amounted to 39% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case Frequentis has €66.2m in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 55% over the last year. So we don't think Frequentis's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Frequentis, you may well want to click here to check an interactive graph of its earnings per share history.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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

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.