Here's Why tonies (FRA:TNIE) Can Manage Its Debt Responsibly

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.' 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. We note that tonies SE (FRA:TNIE) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is tonies's Net Debt?

You can click the graphic below for the historical numbers, but it shows that tonies had €8.40m of debt in June 2025, down from €20.2m, one year before. However, it does have €39.6m in cash offsetting this, leading to net cash of €31.2m.

How Healthy Is tonies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that tonies had liabilities of €132.2m due within 12 months and liabilities of €37.8m due beyond that. Offsetting these obligations, it had cash of €39.6m as well as receivables valued at €33.1m due within 12 months. So it has liabilities totalling €97.3m more than its cash and near-term receivables, combined.

Since publicly traded tonies shares are worth a total of €853.4m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, tonies also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for tonies

It was also good to see that despite losing money on the EBIT line last year, tonies turned things around in the last 12 months, delivering and EBIT of €745k. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if tonies 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. tonies 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, tonies actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

Although tonies's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €31.2m. The cherry on top was that in converted 4,183% of that EBIT to free cash flow, bringing in €31m. So is tonies's debt a risk? It doesn't seem so to us. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for tonies you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.