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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Koenig & Bauer AG (ETR:SKB) does carry debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Koenig & Bauer's Net Debt?
The image below, which you can click on for greater detail, shows that at March 2025 Koenig & Bauer had debt of €278.8m, up from €265.5m in one year. However, because it has a cash reserve of €96.7m, its net debt is less, at about €182.1m.
A Look At Koenig & Bauer's Liabilities
According to the last reported balance sheet, Koenig & Bauer had liabilities of €637.0m due within 12 months, and liabilities of €441.3m due beyond 12 months. On the other hand, it had cash of €96.7m and €176.6m worth of receivables due within a year. So it has liabilities totalling €805.0m more than its cash and near-term receivables, combined.
The deficiency here weighs heavily on the €233.7m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Koenig & Bauer would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Koenig & Bauer's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Check out our latest analysis for Koenig & Bauer
In the last year Koenig & Bauer's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.
Caveat Emptor
Importantly, Koenig & Bauer had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping €42m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it lost €77m in just last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is quite risky. We'd prefer to pass. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Koenig & Bauer you should be aware of.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.