Friedrich Vorwerk Group (ETR:VH2) Seems To Use Debt Rather Sparingly

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.' 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. Importantly, Friedrich Vorwerk Group SE (ETR:VH2) does carry debt. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

How Much Debt Does Friedrich Vorwerk Group Carry?

You can click the graphic below for the historical numbers, but it shows that Friedrich Vorwerk Group had €27.4m of debt in March 2025, down from €30.3m, one year before. But it also has €110.2m in cash to offset that, meaning it has €82.7m net cash.

A Look At Friedrich Vorwerk Group's Liabilities

Zooming in on the latest balance sheet data, we can see that Friedrich Vorwerk Group had liabilities of €126.7m due within 12 months and liabilities of €63.1m due beyond that. On the other hand, it had cash of €110.2m and €111.5m worth of receivables due within a year. So it actually has €31.9m more liquid assets than total liabilities.

This state of affairs indicates that Friedrich Vorwerk Group's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €1.72b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Friedrich Vorwerk Group boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Friedrich Vorwerk Group

Although Friedrich Vorwerk Group made a loss at the EBIT level, last year, it was also good to see that it generated €65m 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 Friedrich Vorwerk Group 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. Friedrich Vorwerk Group 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, Friedrich Vorwerk Group 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

While we empathize with investors who find debt concerning, you should keep in mind that Friedrich Vorwerk Group has net cash of €82.7m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of €83m, being 128% of its EBIT. So we don't think Friedrich Vorwerk Group's use of debt is risky. 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 Friedrich Vorwerk Group's earnings per share history for free.

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.