KSB SE KGaA (ETR:KSB) Takes On Some Risk With Its Use Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies KSB SE & Co. KGaA (ETR:KSB) makes use of debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

What Is KSB SE KGaA's Debt?

As you can see below, KSB SE KGaA had €2.40m of debt at June 2025, down from €9.60m a year prior. However, it does have €290.1m in cash offsetting this, leading to net cash of €287.7m.

How Strong Is KSB SE KGaA's Balance Sheet?

The latest balance sheet data shows that KSB SE KGaA had liabilities of €944.7m due within a year, and liabilities of €531.1m falling due after that. On the other hand, it had cash of €290.1m and €653.2m worth of receivables due within a year. So it has liabilities totalling €532.5m more than its cash and near-term receivables, combined.

KSB SE KGaA has a market capitalization of €1.64b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, KSB SE KGaA boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for KSB SE KGaA

It is just as well that KSB SE KGaA's load is not too heavy, because its EBIT was down 38% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if KSB SE KGaA 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. KSB SE KGaA 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, KSB SE KGaA's free cash flow amounted to 38% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While KSB SE KGaA does have more liabilities than liquid assets, it also has net cash of €287.7m. So although we see some areas for improvement, we're not too worried about KSB SE KGaA's balance sheet. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for KSB SE KGaA that 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.