MTU Aero Engines (ETR:MTX) Seems To Use Debt Quite Sensibly

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 MTU Aero Engines AG (ETR:MTX) does use debt in its business. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. 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.

What Is MTU Aero Engines's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 MTU Aero Engines had €2.18b of debt, an increase on €1.57b, over one year. However, its balance sheet shows it holds €2.19b in cash, so it actually has €14.0m net cash.

A Look At MTU Aero Engines' Liabilities

The latest balance sheet data shows that MTU Aero Engines had liabilities of €4.88b due within a year, and liabilities of €3.00b falling due after that. Offsetting this, it had €2.19b in cash and €2.68b in receivables that were due within 12 months. So its liabilities total €3.00b more than the combination of its cash and short-term receivables.

Given MTU Aero Engines has a humongous market capitalization of €19.4b, 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. Despite its noteworthy liabilities, MTU Aero Engines boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for MTU Aero Engines

Although MTU Aero Engines made a loss at the EBIT level, last year, it was also good to see that it generated €1.1b in EBIT over the last twelve months. 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 MTU Aero Engines can strengthen its balance sheet over time. 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. MTU Aero Engines 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. Over the last year, MTU Aero Engines reported free cash flow worth 12% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

Although MTU Aero Engines's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €14.0m. So we don't have any problem with MTU Aero Engines's use of debt. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of MTU Aero Engines's earnings per share history for free.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.