Is tonies (FRA:TNIE) Using Debt Sensibly?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We note that tonies SE (FRA:TNIE) does have debt on its balance sheet. But is this debt a concern to shareholders?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does tonies Carry?

The image below, which you can click on for greater detail, shows that tonies had debt of €15.7m at the end of December 2024, a reduction from €23.0m over a year. However, its balance sheet shows it holds €87.6m in cash, so it actually has €71.9m net cash.

A Look At tonies' Liabilities

Zooming in on the latest balance sheet data, we can see that tonies had liabilities of €166.2m due within 12 months and liabilities of €45.9m due beyond that. Offsetting this, it had €87.6m in cash and €87.9m in receivables that were due within 12 months. So its liabilities total €36.6m more than the combination of its cash and short-term receivables.

Given tonies has a market capitalization of €610.1m, 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, tonies boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. 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.

See our latest analysis for tonies

In the last year tonies wasn't profitable at an EBIT level, but managed to grow its revenue by 33%, to €481m. With any luck the company will be able to grow its way to profitability.

So How Risky Is tonies?

Although tonies had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of €13m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. One positive is that tonies is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But that doesn't change our opinion that the stock is risky. 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. Be aware that tonies is showing 1 warning sign in our investment analysis , you should know about...

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.